Week in Review: Hurricane Sandy, Banks, and Africa

Last week, Hurricane Sandy certainly made its presence known to the Northeast. Despite closing the public markets for two days, the national economy seems to have weathered the storm better than expected. The private markets — never having closed for the storm — continued with their activity as well.

Over the last week, some PE firms began to exit on banks purchased in the aftermath of the 2008 crash – but not without first changing some of the operating strategies of the lenders. Investors deterred by the ongoing economic uncertainty and natural disasters in the United States are starting to see Africa as an area of consideration- especially as their own pension funds begin to invest in alternatives. And finally, firms focused on the US are looking to repair the image of the PE industry as the campaign season closes down.

Sandy Shows Economy Stronger than Thought: Although Hurricane Sandy may have left much of the Northeast in shambles, it seems to have left the economy relatively unscathed. Despite anticipated dips, the stock market reopened on Wednesday to healthy activity, with the S&P 500 closing higher than it opened. The activity stands in contrast to the near-300 point fall that occurred in the aftermath of the Japanese tsunami last year. Is the economy finally reaching a sturdier position? Or are Americans just optimistic about the recent housing and employment gains?

The Private Equity Effect: Traditionally, the distinction between banks and private equity firms has been pretty clear, both in practice and theory. However, since the 2008 crisis, the distinction has begun to blur. With PE shops picking up nearly 200 banks since in the last few years, many of these banks have begun adopting strategies akin to those seen in private equity — generating quick returns, pursuing relatively riskier investments, etc. As many of the PE shops begin to exit on these banks, will their new habits persist?

Africa: Unlocking Local Capital to Drive Investment in Africa: If you are looking for a new region in which to investment, it might be worthwhile to check out Africa. Although many PE shops in the region have been underfunded over the past few years — investing $12.3bn, while only raising $11.0bn — more capital might begin to emerge as African pension funds open up and diversify investments. According to Hurley Doddy of Emerging Capital Partners, the rising middle class has helped grow the pension funds, offering a new source of capital for GPs looking to explore the emerging market.

How Private Equity Firms are Working to Clear Up Misperceptions About Their Industry: Many private equity shops are eager to dissolve the anti-PE attention that has surged during the campaign season. In an effort to amend the perception of the industry, firms have begun engaging in open conversations about the inner workings (and benefits) of the PE industry. For example, did you know that “from 1995 to 2009, private capital-owned companies produced job growth at a rate of 81.5 percent compared to only 11.7 percent for all other businesses?” A few more data points like these and private equity might not have such a bad rap. (See also: Equity Firms Try to Repair Image)

If you enjoyed our Introduction to Mezzanine Webinar, you should check out this related article from Member Hadley Capital.