Caroline Williams, a partner in Walkers' Global Investment Funds Group, explores how Cayman Islands private equity products have held up in 2022 and what can be expected over the course of 2023.
Global funds raised in the full private capital sphere reached UAD1.2 trillion in 2021, a 14% increase on 2020 and the highest level reached to date. Buyout funds had their second best ever year in 2021 (USD387 billion) and growth, venture and infrastructure also all grew fast. This demonstrates that investors are still keen to invest in private equity.
The timeframe for raising flagship buyout funds has fallen from around five years to close to one. Not only are funds being raised on a more frequent basis but they are also larger, with consequences for downstream M&A activity.
"Volatile markets are an opportunity, in particular for distressed managers."
In 2023, inflationary pressures and rising interest rates, while impacting on both business and consumers, provide significant potential opportunities for private equity players.
M&A Activity in 2023
Lenders have a limited appetite for traditional debt financing. Some may be looking to offload commitments they signed up to before the war in Ukraine. Other options are, however, open to private equity sponsors: Walkers has seen more continuation funds being raised, more fund-to-fund transaction and more "take private" transactions.
"From a sponsor's perspective, given the depressed public markets, take privates are a highly attractive proposition."
All of these types of transactions will feature Cayman Islands entities as part of the structuring.
Targets with strong balance sheets (eg, healthcare, the energy sector and growth investing), are best able to withstand inflationary pressure, labour shortages and supply chain issues.
"Private equity thrives in times of volatility and distress."
SPACs are now an established feature of the M&A landscape. Total SPAC capital seeking acquisitions stood at USD154 billion in November 2021, approximately 11.7% of global private equity dry powder. While the flurry of SPAC formations seen in 2021 has not repeated itself, that volume of capital will continue to affect the private equity landscape.
Cayman Islands Regulatory Developments
Following the recent introduction of the Private Funds Act in the Cayman Islands, private funds are now regulated like hedge funds. This change was driven by EU desire to see global regulation of the private funds industry. Walkers anticipates updates to the Exempted Limited Partnership Law, enhancing the flexibility of a user-friendly structuring vehicle, based on the Delaware equivalent.
Originally Published by Chambers And Partners
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