“After the failure of SVB, we anticipate more scrutiny and disclosure of the valuation, because especially a large part of the ‘trust’ capital of pension funds has found its way into these markets and, unlike endowments and family offices, there is no avenues to extend and simulate, Gaurav Patankar, an analyst at Bloomberg Intelligence, wrote in a note on Friday.
Some private equity and venture capital firms are resorting to “spread” and “simulate” strategies, meaning they would hold on to assets or shore up capital to avoid true price discovery, Patankar added in an interview on Friday. . Examples of this include net asset value loans that allow general partners to borrow against a group of portfolio companies within a fund, general partner-led secondary structures where a fund sponsor sells one or more assets of a fund that it already manages a new fund, and financing alternatives through private credit.
But such methods can only delay, not negate, the fundamental problem of the “unsustainable” and “unrealistic” nature of company valuations, he said. “There are enough zombie companies with frothy valuations that need construction, price discovery and, of course, retooling their business models for a world of tighter credit, moderate income and higher rates,” Patankar said.