NEWSLETTER of May 22, 2020

The following content has been added at finexpert:

McKinsey & Company
DIVERSITY WINS: HOW INCLUSION MATTERS
Diversity wins is the third report in a McKinsey series investigating the business case for diversity, following Why diversity matters (2015) and Delivering through diversity (2018). Our latest report shows not only that the business case remains robust but also that the relationship between diversity on executive teams and the likelihood of financial outperformance has strengthened over time. These findings emerge from our largest data set so far, encompassing 15 countries and more than 1,000 large companies. >more

Alvarez & Marsal
ILLIQUIDITY VS. VOLATILITY: THE TALE OF TWO MARKET DOWNTURNS
By now many articles have been written about the stress in the markets and in homes created by COVID-19 and the economic disruption. In today’s 24-hour news cycle, bad news must sell better than good news as we are inundated with negativity. With all the doom and gloom around us, I wanted to take a moment to share some positive news related to the markets and contrast that with the market downturn in 2008. The current environment although volatile is very different than what occurred in 2008. The current market seems distressed, but on great volume and is so far orderly. This has so far allowed valuation professionals to use market inputs to fair value financial instruments and that is a bit of good news. >more

EY
2020 GLOBAL CORPORATE DIVESTMENT STUDY: KEY FINDINGS
Like so much else, shareholder activism has felt the economic impact of COVID-19; campaigns globally have fallen 25% to 238 in the first quarter of 2020, compared to the same period a year ago. This decreased level of activity may be why only 25% of global companies say activism will influence their divestment plans in the next 12 months. But while activist investors may appear to be down now, they’re not out. Some may have their own difficulties to deal with, but other hedge funds are raising multi-billion-dollar funds to capitalize on market dislocation. And many, including the larger well-established firms, are thriving with large war chests, ready to deploy as we move into the next phase of the pandemic response. >more

Neuberger Berman
THE HISTORICAL IMPACT OF ECONOMIC DOWNTURNS ON PRIVATE EQUITY
In light of recent market volatility, Neuberger Berman’s Private Equity and Institutional Solutions teams analyzed historical private equity performance during two recent periods of market distress. We performed this analysis to gain perspective on current conditions with the understanding that the dynamics behind COVID-19-related volatility may be quite different from the past. Focusing on the major economic downturn of the early 2000s and the 2007 – 09 global financial crisis, we found that private equity historically experienced a less significant drawdown, and a quicker recovery, than public equities in both cases. We also noted a lag in the slowing of capital calls and a more immediate drop in distributions, both of which resumed as the economy and public markets regained their footing. >more

Invest Europe
INVESTING IN EUROPE: PRIVATE EQUITY ACTIVITY 2019
With data on more than 1,400 European private equity firms, covering 86% of the €782bn in capital under management in Europe, Invest Europe offers the most comprehensive review of fundraising, investment and divestment trends for European private equity and venture capital activity. >more

LISTING GAPS, MERGER WAVES, AND THE PRIVATIZATION OF AMERICAN EQUITY FINANCE
Gabriele Lattanzio, William L. Megginson, and Ali Sanati
2020
The US listing gap - an abnormal decline in the number of stock market listings relative to other countries - is often interpreted as a warning sign for the US public equity markets. We show that, over the same period that the US listing gap expands, the US economy has experienced abnormally high aggregate stock market valuations, merger activity, and private equity (PE) investments. We investigate the relations among these dimensions and document a transition in the US equity financing model. Our revised estimation shows that the US listing gap is created in two distinct waves, the timing of which suggests a negative role for the regulation of listed firms. The US listing gap is virtually fully explained by the rise of mergers and acquisitions activity, as the leading factor, and PE investments since the mid-1990s. Finally, we document that this phenomenon is emerging in other developed economies, with a few years of delay. >more

GOVERNMENT EQUITY INVESTMENTS IN CORONAVIRUS BAILOUTS: WHY, HOW, WHEN?
William L. Megginson, and Veljko Fotak
2020
Governments around the world are attempting to support individuals’ incomes, rescue distressed businesses, and preserve employer-employee relationships damaged in the coronavirus pandemic by adopting fiscal stimulus programs of unprecedented scale. Although the bulk of this spending will involve direct payments to individuals or some type of direct lending or loan guarantees to businesses, large sums will (and should) take the form of government purchases of equity in distressed firms — either by direct purchase or by exercising warrants attached to rescue loans. We discuss why we think these equity injections will be necessary, but only in a limited number of cases; how they should be structured; when investments should be made and, almost as important, exited. We summarize (and tabulate) both the modest recent history of governments rescuing non-financial firms with equity injections and the voluminous research examining the efficacy of governments rescuing failing banks using equity investments. We highlight the dangers that would likely arise if governments permanently retain and vote the equity stakes purchased during the current crisis. >more