FT News Briefing Private equity wrestles with higher interest rates
Nov 6, 2023
Donald Trump is set to testify in a civil fraud trial, grabbing headlines amidst other pressing global issues. In Japan, the Prime Minister is rolling out a hefty $113 billion stimulus to combat inflation and low approval ratings. Meanwhile, private equity firms are feeling the squeeze from rising interest rates, facing significant fundraising challenges since 2021. As they navigate these turbulent waters, some are resorting to strategies like NAV loans, leading to a potential reshaping of the industry.
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Japan's Stimulus Package
- Japan's Prime Minister Kishida faces low approval ratings and pressure amid rising inflation.
- He introduced a stimulus package with tax cuts and cash handouts, potentially complicating the Bank of Japan's policy shift.
Private Equity Reckoning
- Private equity faces a reckoning due to rising interest rates, impacting dealmaking and fundraising.
- The era of cheap debt fueling acquisitions is over, forcing firms to adapt or face consequences.
NAV Loans in Private Equity
- Private equity firms are using NAV loans, borrowing against fund assets, to return money to investors.
- These loans, with high interest rates (10-18%), offer a temporary fix but carry risks.