How far along are we in the current M&A cycle? As geopolitical events and Federal Reserve rate hikes promise to lend certainty to a volatile quarter, this is a great time to look at limited partner perspectives on the year ahead. Institutional investors surveyed in the waning days of last year had mixed thoughts on the prospects of rallies in equity and debt markets, as well as the macroeconomic and real estate cycles. Add more recent uncertainty generated by persistent inflation and the Ukraine/Russia crisis, and all bets are potentially off.
But where would a solid read of the tea leaves get you, banking on the views of 350 limited partners interviewed by Preqin in the runup to the year? Narratives vary depending on asset class. A plurality of institutional investors (approaching 40 percent) saw the commodities continuing robust performance in a rising market. This prediction has thus far come true, with metals and oil & gas notching solid 1Q returns.
Other asset classes closer to the ballpark of most middle-market M&A transactions, however, faced less rosy prospects according to those surveyed. Equities and debt markets were seen approaching their peak in November 2021, the largest group of surveyed investors said. Roughly equal groups took the view that equities were in a rising market vs those that said they had already peaked. Financial sponsors building platforms designed as SPAC bait should therefore heed the warning.
And in real estate? Here, the plurality of investors saw a market mirroring equity market trends. The asset class’s status for non-correlated performance seems up for grabs. Given recent investments in real estate-focused funds, however, the survey’s temperature taking might have some limitations.