StepStone 2Q19 Market Commentary

September 10, 2019

Earlier this year, the US bull market officially became the longest in history. Due to technological growth, stagnant wages, low interest rates, and other deflationary pressures, the expansion has also been one of the slowest. Bull markets may not die of old age, but investors are become more skittish nonetheless. They have become increasingly watchful of volatility in the stock market, and the concomitant flight to corporate and sovereign bonds has brought yields from those assets down. That investors in search of safety are willing to pay such a steep premium above par symbolizes the uncertainty of the times.

Real Estate Is On Pace To Raise Fewer Funds, But More Capital

Through April, 58 funds closed on US$58 billion; for all of last year, 380 funds closed on US$138 billion.

North America continues to dominate global fundraising. As real estate returns have compressed, investors are turning their sights up the risk curve—targeting value-added and opportunistic strategies.

Direct Lending Is Moving Up Market

Large borrowers are increasingly finding direct lenders more attractive than their syndicated counterparts. To secure its controlling stake in Acuris, ION Investment Group received US$1.25 billion in single-tranche financing from HPS and Goldman Sachs Private Credit.

Software Has Become A Major Driver Of European Buyouts

Software buyouts accounted for 18.1% of deals in 2Q19, almost double the average between 2010 and 2018.

There are several reasons we believe European GPs will remain attracted to this sector; IT has outperformed all other sectors—achieving an aggregate realized TVM of 2.45x.

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