Citi Global Wealth UNSToPPABLe TreNDS | | 71 Investments With valuations coming down, we expect to see an increase in buyout wHAT To Do Now? managers taking listed companies private. IT deal value accounted for 31% of PE deal activity in the third quarter of 2022, near the highest level Given the decline in tech valuations and our positive long-term outlook ever.4 Technology is now a core focus for many buyout managers, given the for digitization, we see a case for investing in such companies via early- sector’s growth prospects and today’s lower valuations. and late-stage venture capital managers as well as growth and buyout With the IPO market effectively shut off for now, late-stage, growth and managers. We also favor lending to late-stage, growth and pre-IPO pre-IPO companies will need to access capital from private sources, companies via private credit managers. Once interest rates peak, we including private lenders. Private equity’s appetite for IT acquisitions did believe investors will focus more on digitization’s growth prospects not significantly decline in the first three quarters of 2022 compared to the again. As valuations recover over time, private managers will have same period in 2021. Capital still flowed into the sector, with 1,239 deals scope to sell their stakes at higher prices. closed globally during 2022 as of the third quarter, with an aggregate deal While we believe a counter-cyclical approach of buying when others value of $128.9 billion.5 are fearful makes sense, these strategies come with risks, beyond However, leveraged loan and high-yield issuances are near the lowest levels that of rising interest rates undermining valuations. As private market since the global financial crisis6 at a time when rates and spreads have strategies, they are illiquid, requiring investors to commit for a period increased meaningfully, allowing alternative private credit providers to step of several years. For example, private technology investing typically in and provide financing to select deals – see Alternative investments may involves investing in companies that are generating negative free cash enhance cash yields. flows and can require additional capital to fund growth. Many suitable clients’ portfolios do not have much exposure to private equity as an asset class. Indeed, many lack any exposure at all. We also note many of the same clients may be underinvested in digitization. Such clients should consider their current portfolio positioning and how they might add the potential for further return and diversification. 4,5 Source: Preqin, as of 30 Sep 2022 6 S&P LCD Quarterly Review, Q3 2022