Does it all matter?

I've recently been speaking with some of my colleagues in private equity who believe the market's recent vicissitudes have no effect on their firms and underlying portfolio companies. Not only does the state of the market affect all of us on a macroeconomic level, and vice versa, more important in times like these is how it affects us on a psychological level. When the market trades through key levels it can benefit private equity firms on the upside by providing increases liquidity and possibility for exits, and therefore increase investor interest and confidence, subsequently leading to increased access to capital. Of course on the downside it has the complete opposite effect. Remember when the industry entered crisis mode last fall when the markets were in a free fall? While the private equity structure is built as a long term investment, unfortunately investors do not (or cannot) respect that dynamic all the time. Some investors were forced to sell while other were just plain spooked. This is all to say the range-bound market action over the last few days does have an impact on investors. Most don't like 'uncertainty' and private equity is an investment vehicle that cannot necessarily take advantage of short-term corrections through trading, short selling, and arbitrage. Investors will want to know which direction the economy is heading in and whether it will continue. This will let them know what businesses may benefit and where to invest. Until then the alternative investments space will be ruled by nimble and flexible hedge fund strategies that require low leverage and have deep liquidity pools.

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