As one of our fund managers told us last week, “it’s a buyer’s market right now”…
Things may seem scary with the recent stock market tumbles and economic concerns, but past fund performance data shows that funds investing through periods of distress are the best performing.
Data from Cambridge Associates’ global benchmarks for private equity and real estate show that the two best performing indexes between 2000 and 2014 were by funds that started investing in 2001 and 2009 respectively (performance for funds beyond 2014 are not mature enough to be meaningful).
Fund performance by vintage year
Source: Cambridge Associates Global Private Equity and Real Estate Benchmarks
The global economy experienced major repercussions in 2001 following the Tech Bubble bursting and 2009 saw then record declines in stock markets – sound familiar?
Cheaper valuations - the primary reason for this is that market valuations for companies and assets are cheaper for fund managers to take advantage of. Given that funds typically sell investments in 4 years, this is plenty of time for them to hold and sell once markets recover and valuations improve.
Increased deal flow – private funds see increased investment opportunities due to more sellers coming to market. Investors and business/asset owners are more likely to get nervous during periods of dislocation and rush to market to seek an exit for their asset. Private funds benefit from this and negotiate better deals when markets panic.
This is why we and our fund managers are extremely positive about the future and why you should be too.
A couple of quotes below exemplify this attitude:
"Be greedy when others are fearful and fearful when others are greedy" - Warren Buffet
"Buy when there's blood in the streets, even if the blood is your own" – attributed to Baron Nathan Rothschild