Take a deep breath, and whatever you do, don’t look at your investment portfolios.
As you’re well aware, in anticipation of the Fed’s interest hikes today to further combat inflation, the markets have officially entered bear territory.
Previously described as a nowhere-to-hide market, safe havens don’t figure to appear any time soon. However, that doesn’t mean smart investors will sit on piles of cash and accept zero possibility of returns.
In fact, for a lot of billionaire investors, it’s quite the opposite.
There is more and more evidence that these investors are actually putting an increased priority on possibly securing outsized returns.
And as the public markets and cryptocurrency continue to freefall, they’ve turned their attention to a different realm…
UBS, the largest bank in Switzerland, surveyed roughly 200 offices that manage more than $2 billion in assets. It found that amidst these uncertain market conditions, big-time investors have opted to eschew liquidity in favor of potential returns.
In 2019, these funds allocated roughly 15% of their assets into private equity. In 2021, that figure rose to 20%.
Now, many plan to put more money into private equity during the next five years.
That said, it’s worth mentioning these funds aren’t doing so because they feel private equity is immune to this economic downturn. Instead, it’s more a statement about the proper way to approach investment in private equity.
“What it will do,” said UBS chief investment officer for global family and institutional wealth, Max Kunkel, “is expose the funds that had principally ridden this liquidity driven rally and used leverage and fancy stories versus those who had focused on adding value.”
It’s no secret that the coffers had been flowing freely the past few years.
In 2021, U.S. VC-backed ventures raised a total of $329.9 billion.
That’s a large number in a vacuum, but it becomes clear just how large it really is when you consider that, in 2020, those companies raised just $166.6 billion.
This is the “liquidity driven rally” Kunkel referenced, as the landscape for startup investing became about securing investments no matter the cost. As a result, the valuations of startups – particularly those in the tech sector – were driven up in bidding wars.
Unfortunately, these same tech startups are often the ones with “fancy stories” that, while still realizable, require significant amounts of time and money to achieve.
It’s the last four words of Kunkel’s statement that should ring loudest for those looking to figure out where to turn in private equity.
“Focused on adding value.”
We’ve told you in recent weeks that the shift in the startup landscape favors companies that are either already profitable or close to breaking even.
It’s not rocket science. In a landscape that prioritizes growth, these companies are already through the hardest part.
However, it is no longer “growth at all costs.” And it’s paramount that you, as an angel investor, are able to do your due diligence.
Of course, that is the priority for us here at the Angels & Entrepreneurs Network.
And you can rest assured that our process of evaluating startups takes into account all of the market conditions.
We’re talking about startups that are already raking in millions of revenues. Those getting set to introduce their game-changing products and services to their respective markets.
Those with the chance to provide the types of returns billionaires are prioritizing over liquidity.
As we know, the markets are cyclical. There will be unicorns and decacorns born from this rubble that find themselves on top once the dust settles.
We’re working around the clock to help you find and invest in them.
The Research Team