Private equity (PE) is a rapidly growing area of the investment industry.
Private equity refers to ownership interest in companies that are not publicly listed or traded. Firms that operate in this space raise money from investors and then, after doing their research, deploy this capital into businesses that are believed to have significant growth potential (e.g., before Airbnb came to the public markets, it received private equity funding). They then take a cut of the profits if their investments are successful. It’s a lucrative business model that can generate strong returns for shareholders over the long term.
A lot of the time, private equity firms use the capital they’ve raised to invest in start-ups and private companies in industries such as technology, healthcare, and biotechnology. However, sometimes PE firms use their capital to acquire control of public companies so that they can take them private, and improve the businesses — away from the scrutiny of the public markets. They then resell them for a higher price later on via an IPO (when the timing is right) or sell to a strategic buyer. This is known as a “buyout”.
It’s this latter strategy that we have seen a lot of recently. With valuations across the public markets falling significantly, private equity firms have been snapping up publicly traded businesses left, right, and center, in order to take advantage of arbitrage opportunities.
Indeed, globally, PE firms spent a record $226.5 billion on buyouts in the first half of 2022, up nearly 40% year-on-year, according to Dealogic.
Here’s a look at some major private equity deals and developments we’ve seen so far in 2022:
In January, cloud computing and virtualisation technology company Citrix Systems announced that it was being acquired by affiliates of Elliott Management and Vista Equity Partners in a deal worth $16.5 billion.
In April, a KKR-led consortium offered to buy Australian private hospital operator Ramsay Health Care for roughly $15 billion.
In July, Deutsche Telekom agreed to sell 51% of its towers business to Canada's Brookfield Asset Management and US private equity firm DigitalBridge for $17.5 billion.
Clearly, private equity firms are seeing a lot of opportunities right now.
It's worth noting that PE firms tend to have expertise in different areas.
KKR, for example, has experience in areas such as technology, healthcare, and financial services. In contrast, Brookfield Asset Management focuses heavily on infrastructure. This explains why KKR was interested in Ramsay Health Care while Brookfield was interested in Deutsche Telekom’s assets.
Those interested in gaining portfolio exposure to the private equity industry may wish to check out eToro’s Private-Equity Smart Portfolio. This is a fully allocated investment portfolio focused specifically on publicly listed firms that are investing in PE firms. Designed for long-term investors, this Smart Portfolio offers exposure to some of the biggest players in the private equity space including the likes of Blackstone, KKR, The Carlyle Group, and Apollo Global Management, which specialise in industries such as technology, infrastructure, and healthcare.
2022 has been a challenging year for crypto investors so far. While the crypto market did stage somewhat of a recovery in July, the market values of most crypto assets and non-fungible tokens (NFTs) are still down significantly year-to-date.
Bitcoin, for instance, is down around 50%. Macroeconomic factors, such as surging inflation, rising interest rates, and lower economic growth, as well as geopolitical crises, have been a key driver of the volatility in the crypto space. Other issues, such as Celsius Network and Three Arrows Capital filing for bankruptcy and Coinbase laying off staff, have also contributed to the weakness across the asset class.
However, despite the recent turmoil in the market, many investors remain optimistic about the future of crypto. Take William Cai, Co-founder and Managing Partner of New York-based investment firm Wilshire Phoenix, for example. Cai — who previously managed billion dollar portfolios at JP Morgan — says that the latest crash doesn’t necessarily point to the downfall of crypto. He believes that the crypto market has been following economic conditions and the stock market recently, and that when these start to recover, crypto assets' performance should improve too.
Another thing that could certainly help crypto going forward is regulation.
Right now, lawmakers around the world are looking to establish laws and guidelines designed to make crypto assets safer for investors and less appealing to cybercriminals. While there’s still a long way to go, we’ve seen some major progress on the regulatory front in 2022. In the US, President Joe Biden recently signed an executive order that called on government agencies to study the “responsible development” of digital assets, including stablecoins. Meanwhile, in Europe, regulators recently hammered out the final details on a sweeping package of crypto regulations known as “Markets in Crypto Assets” (MiCA). Better regulation should ultimately reduce some of the volatility in the asset class and add a layer of protection for investors.
Further institutional adoption could also bring about more use cases for everyday users, and in turn, have a positive impact on crypto prices. While paying for goods and services in cryptocurrencies doesn’t make sense for most people right now, the situation might be different in the future if more retailers start to accept payments.
One crypto asset that has enjoyed a nice bounce recently is Ethereum. It’s the second-largest cryptocurrency after Bitcoin and the best-known altcoin in the market. Like Bitcoin, it can serve as a good measure of the crypto market. Looking ahead, the outlook for this digital asset appears to be attractive. In September, Ethereum is set to experience a massive upgrade known as “‘The Merge”. This upgrade, which is designed to make the network more efficient, faster, and cheaper to use, could boost the appeal of the crypto asset.
Those looking for exposure to crypto assets may want to check out Smart Portfolios such as CryptoPortfolio, which weights crypto assets by market cap, and CryptoEqual, which provides equally weighted exposure to a number of digital assets.