No, we’re not talking about wine. Warren Buffet once famously said, “Be greedy when others are fearful and fearful when others are greedy” and as investors these words are particularly valuable around market inflections. Following the fall of yet another bank with ties to the venture capital and private equity community (First Republic), we are sharply reminded of what fear really looks like. Private investments have fallen off a cliff in 2023. It’s not that valuations have really changed very much for assets with older vintages, but the activity in this current vintage is down more than 70% from last years’ volumes depending on which market and who you ask. Investors are sitting on their hands. Business and asset owners are doing the same. The real question of course is a matter of who is right and who is going to wish they acted differently or earlier?
Those in possession of available capital usually come out on top when markets are uncertain. It is much easier to be patient with spending than it is to pay your bills when your assets aren’t cash flowing the way you may have hoped when they were underwritten. That’s nothing new, but it’s a great reason to believe that the 2023 vintage for VC, PE and RE investments may be one of the best in a long time. According to a recent poll by PitchBook, most investors today believe this to be true despite, and perhaps because they are struggling to raise capital. While asset values may have overshot over the last several years, activity being down 70% will almost certainly result in a fresh opportunities for those that are greedy while others are fearful.