Mark Hauser Notes Recent Equity Growth and Warns for Upcoming Challenges

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Mark Hauser, a private equity partner, has noted several trends in growth in the equity market and several challenges that private equity investors should consider.

Due to the COVID-19 pandemic, global economic sectors have been in flux. In 2021, however, the equity market did surprisingly well due to less travel and more virtual transactions. Leveraged buyouts reached record levels. General partners even achieved their second-highest fundraising volumes in the industry’s history, and overall, distributions trended higher in 2021.

These outcomes are the result of fast economic recovery. The COVID-19 pandemic did not substantially affect the private equity industry. The stimulus funds given during the pandemic gave both private and public investors extra capital to invest, and that influx of cash helped businesses deal with supply chain issues. The average 2021 deal size surpassed $1 billion for the first time.

Digital technology is quickly changing the way private equity investors do business in 2022. Thus, the private equity market is becoming more competitive, allowing for faster deals and more highly focused companies. There are higher numbers of new managers familiar with this digital space and are more receptive to building relationships with innovative investors. Because of all this change, Mark Hauser notes that investors should be more flexible to changes in the market—especially when it comes to SaaS (software-as-a-service), which is an excellent example of how technological-based deals are quickly becoming a desirable business model.

Additionally, private equity limited partners are including environmental, social, and governance factors into their investment process, which makes sense, given the global economy’s recent focus on limiting fossil fuel ventures. Mark Hauser notes that while companies that highlight these factors would be more ready for a sustainable global economy, every firm has different criteria, and there is no uniform reporting standard for these factors.

As far as future challenges go, Mark Hauser notes the Bain 2022 Global Private Equity Report, which states that energy and food prices are rising, and capital costs are becoming more expensive. For example, Russia’s invasion of Ukraine is causing extreme economic issues and is likely to continue to disrupt prices. Due to geopolitics and national security concerns, there are now more impediments to global capital inflows. Supply chain issues are also affecting the global economy by limiting retail stores and reducing the manufacturing of electronic chips, causing price inflation.

The Federal Reserve indicated it would increase interest rates three times in 2022 and more in 2023. These higher interest rates would make leveraged loans more expensive. Additionally, the SEC is planning to mandate more regulations for private equity fund managers. Fund managers should be wary of these changes.

Mark Hauser and other private equity investors are examining the economic factors that could affect their investments. They will continue to optimize their returns based on these insights.