 | | (Chloe Ladwig/PitchBook News) | | | Private equity has a reputation for surviving, and even thriving, in most economic crises, thanks in part to its illiquid nature and focus on long-term horizons. However, while this quality can insulate investors from economic volatility, at times it can also insulate them from reality.
It has been a bad year for public markets. At the time of writing, the S&P 500 is down by just over 18% year-to-date, while Europe Stoxx 600 is down by just over 12%. Yet it is harder to say how PE has fared. Fundraising and dealmaking have cooled off, but in both cases, this still only really reflects a return to activity pre-2021: US PE deal value hit $1.2 trillion that year—64% higher than the previous record—while fundraising topped $301 billion, just shy of 2019's record.
News of portfolio markdowns has been sporadic thus far. For example, Blackstone saw its corporate PE portfolio fall 6.7% in Q2. More recently, there were also reports that in Q3, Massachusetts Pension Reserves Investment Management noted a 5.7% drop in the value of its PE portfolio.
Even so, the fear rippling through the public markets has not carried over to PE investors. Instead, the industry is cautiously optimistic—even confident—about its ability to ride out the economic and financial storm, with investors' portfolios sufficiently diversified to absorb any unfolding economic shock.
A part of this optimism could be chalked up to genuine resilience, but there is also something to be said about the way fund managers report their portfolio performance and how this could contribute to a relatively rose-tinted view.
As the macroeconomic picture gets bleaker, more markdowns could materialize, and some investors may find that the glass is not half full.
I'm Andrew Woodman, and welcome to The Weekend Pitch. You can reach me at andrew.woodman@pitchbook.com or on Twitter @adwoodman. | | | | | | | |
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| A message from Masterworks | | |
| Microsoft co-founder's $1.5B+ sale highlights "safe haven" asset | | Earlier this month, Paul Allen's historic art collection shattered the record for largest sale in auction history. The fact that the blue-chip art market is still setting records amid major drawdowns in financial markets, and macroeconomic turmoil, highlights why it can be such a strong alternative diversifier. The high-end art market also remained resilient through downturns like the dot-com bubble and GFC.
But this time around, it's not just the ultra-wealthy benefitting.
Thanks to Masterworks. This unicorn investment platform allows everyday people to invest in shares of multimillion-dollar art by names like Banksy and Picasso. So far, seven of Masterworks' last eight exits have realized a net return of +17.8%.
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See important Regulation A disclosures. | | | | | | | |
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Valuation in Holmes' sentencing | |  | Former Theranos CEO Elizabeth Holmes, center, arrives Friday at federal court with her partner Billy Evans, right, and mother Noel Holmes in San Jose. Holmes was sentenced after being convicted of four counts of fraud.
(Justin Sullivan/Getty Images) | | | In handing down a punishment for Theranos founder Elizabeth Holmes' crime, the federal judge in her case partly used a calculation about the company's valuation and the venture capital she fraudulently raised for the blood-testing startup.
Theranos in total raised more than $810 million from investors up through 2014, according to PitchBook data. In preparation for the sentencing, prosecutors had pegged the loss at $804 million among 29 investors, but Holmes's defense lawyers put that figure at no more than $48 million and a smaller number of investors.
Ultimately US District Judge Edward Davila came down much closer to the defense's view of restitution, and he factored in a valuation analysis based on sentencing guidelines.
Speaking at Friday's sentencing hearing in his courtroom in San Jose, Davila said he concluded that Theranos had defrauded at least 10 different investors of a total of more than $121 million. He agreed with Holmes' lawyers that he shouldn't count in that group the investors who participated in late-stage funding rounds in 2013 and 2014, when the company hauled in the biggest portion of its capital, vaulting its valuation to over $10 billion at its peak.
But Davila also said that Theranos still had value even though Holmes had lied to investors about the company. The judge will make a final determination on restitution at a later hearing.
—Alexander Davis | | | | | | Reporter's notebook: Slush | |  | | (Courtesy of Petri Anttila) | | | The mood among investors attending Slush 2022 startup conference in Helsinki this week seemed to match the weather as confidence in VC's outlook cools.
Most are expecting a prolonged period of challenges for startups looking to raise capital after global dealmaking slowed this year. | | | | | | | |  | | (Felix Mizioznikov/Shutterstock) | | | The collapse of cryptocurrency exchange FTX is shaking the crypto sector and causing investors of all kinds to reevaluate their exposure to the asset class. What percentage of government pension plan sponsors is currently invested in crypto currencies?
A) 94%
B) 73%
C) 69%
D) 62%
Find your answer at the bottom of The Weekend Pitch! | | | | | | Cultivated meat's big week
You now have the US government's permission to eat lab-grown meat. The Food and Drug Administration has cleared Upside Foods to start making and selling cultivated chicken—the first approval of its kind in the US.
Hungry for more? PitchBook analyst Alex Frederick recently detailed the top takeaways from the Cultured Meat Symposium.
Private equity takes
your temperature
The healthcare services industry is witnessing fierce competition between hospital systems, PE-backed platforms and vertically integrated payer-providers.
Increasingly, PE firms are becoming more sophisticated investors. In the past, they've focused on consolidating medical specialties like dentists and dermatologists. Now, they're entering new provider categories and looking to scale offerings in value-based care.
PitchBook senior analyst Rebecca Springer has more on these and other trends in our just-launched coverage of Healthcare Services.
Dethroning datacenters
in the AI chip sector
As the AI and machine learning semiconductor sector rides the economic downturn, emerging use cases have been scooping up a larger share of the diminishing VC funding flow. The datacenter chip market, historically the dominant segment, seems to be nearing saturation.
The markets for PC and automotive AI chips have taken the lead in growth this year, at a pace of more than 30%. They will likely surpass datacenters in market size in 2025, giving space for innovation in these areas of the AI and machine learning chip market.
PitchBook senior analyst Brendan Burke shares projections on the future of this sector in a recent analyst note. | | | | | | Keep an eye out for these insights and research reports coming out this week. - Q3 2022 European VC Valuations Report
- Q4 2022 Quantitative Perspectives
- Analyst Note: Recapping the 2022 HLTH Innovation Conference
| | | | | | Answer: A) 94%
According to the 2022 Investor Trust Survey conducted by the CFA Institute, 94% of state and government pension plans are invested in cryptocurrencies. Among insurance companies, the figure is 73%. For sovereign wealth funds it's 69%, and among corporate-defined benefit plan sponsors it's 62% | | | | | |
This edition of The Weekend Pitch was written by Andrew Woodman, Leah Hodgson, Alexander Davis, Chris Noble, James Thorne and Clarinda Simpson. It was edited by Chris Noble and Clarinda Simpson.
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