Alternative Investments Outlook Post-SVB

The collapse of Silicon Valley Bank (SVB) and Signature Bank, an effort to stabilize First Republic Bank, and the recent acquisition of Credit Suisse by UBS have fueled speculation about contagion, raised concerns about the banking sector, and drawn comparisons to the global financial crisis (GFC). We think this is different than 2008; there is not a systemic risk to the financial system, and the aggressive actions over the last several weeks have helped to provide stability to the markets.

What is the impact of these events on alternative investments? SVB was a vital cog in the private market ecosystem. It lent capital to and held deposits for founders, entrepreneurs and multiple Silicon Valley start-ups. According to its website,1 SVB provided funding to 44% of all venture capital (VC)-backed tech and healthcare companies that publicly listed on a stock exchange last year. This creates concerns and opportunities across the alternative asset class.

Private equity: Valuations need to be reset from their lofty 2021 multiples, and the SVB collapse has merely accelerated the adjustment in valuations. Startups will find it more difficult to raise capital. Private companies may stay private longer and struggle to find capital to grow. Secondary private equity may be a beneficiary as founders, family offices, and institutions seek liquidity. Secondary valuations are currently more attractive than other parts of the private equity ecosystem (VC, growth, and buyouts).

Private credit: Amid a flood of cheap money from the Federal Reserve (Fed), years of low interest rates and a pullback in corporate lending from banks, investors in search of higher yields found opportunity in private debt. Private credit surged in size and delivered strong performance relative to traditional fixed income options, in both strong markets and during a challenging 2022. The current market disruptions may present the most attractive investment opportunity for private debt since the GFC.