Global Business Week: Visualizing $2.5 Trillion in Private Equity Cash Reserves

Last Friday, the major stock market indices made modest gains but marked a strong performance for the third consecutive week, driven by declining Treasury yields. The dip in yields was influenced by unexpectedly subdued U.S. inflation data, fostering optimism among investors that the Federal Reserve’s series of interest rate hikes might be behind them. The 10-year Treasury note’s yield plummeted by 19 basis points during the week, reaching 4.44%.In stock market activity, the Dow Jones index rose by 1.9%, the S&P 500 increased by 2.2%, and the Nasdaq Composite climbed by 2.4%. Over the past three weeks, the Dow recorded a 7.8% gain, the S&P surged by 9.6%, and the Nasdaq jumped by 11.7%. The week concluded with the 10-year Treasury yield at 4.44%, while the 2-year yield closed at 4.90%.

The US Dollar concluded its most challenging week since July, facing a 1.60% decline and closing at 103.90 in the US Dollar Index. This downward trend was fueled by soft inflation figures and lackluster economic activity data in the United States. Analyzing the daily chart, the DXY demonstrates a bearish technical stance, with sellers taking control, indicating the potential for further downward movement.The Relative Strength Index (RSI) is trending below its midline, implying a bearish outlook, while the Moving Average Convergence (MACD) histogram displays increasing red bars. Looking at the broader perspective, the index is positioned beneath the 20 and 100-day Simple Moving Average (SMA), reinforcing a negative outlook for the USD. Key support levels include 103.80, 103.60 (200-day SMA), and 103.30. On the upside, resistance levels are identified at 104.15 (100-day SMA), 104.50, and 105.00.

Leading the surge on Thursday, the primary cryptocurrency experienced an impressive $3,000 increase in a single day, reaching an 18-month high at $38,000. However, similar to past attempts to surpass this level, the bullish momentum was intercepted by bears, preventing further increases. While most altcoins recently reached notable local peaks, the current landscape has shifted significantly, with red dominating nearly all charts.Following news of BlackRock’s official filing for a spot Ethereum (ETH) ETF, Ethereum saw a spike to $2,100. Nevertheless, the second-largest cryptocurrency quickly lost value, currently trading $200 below that local high. Other major cryptocurrencies, including Binance Coin, Tron, Ripple, Bitcoin Cash, Shiba Inu, Litecoin, and Toncoin, have also experienced declines of around 2–3% in the past 24 hours alone. Additional losses are noted in Solana, Cardano, Chainlink, MATIC, and DOT, with declines of up to 8%.

Private equity (PE) firms, specializing in investments in non-publicly listed companies, currently hold an unprecedented $2.5 trillion in cash reserves. This substantial cash pool is typically utilized by PE firms to acquire private companies poised for growth, aiming to enhance their valuations. Traditionally, a higher cash reserve has strongly correlated with increased PE deal activity.However, despite this considerable reserve, actual activity remains subdued. The current market environment, characterized by multi-decade high interest rates & uncertainties, has led to mergers and acquisitions plummeting to a 10-year low. The infographic above, presented by Citizens, illustrates the historical ascent of cash reserves and explores the potential catalyst for a revival in M&A deal activity.And finally, before moving on to other statistics, here are the weekly & YTD numbers from various markets and assets (Figure 1).Figure 1

Bitcoin AddressesThe graph below (Figure 2) illustrates a surge in the number of blockchain addresses holding a minimum of $1,000 worth of BTC, a trend closely correlated with BTC’s price. On November 15, the count reached a record high of 8,306,118, surpassing the previous peak recorded two years ago. Notably, despite this surge in address activity, bitcoin’s price remains at an 89% distance from the peak of $69,000 observed in November 2021.Figure 2

Tech ValuationsSome notable insights from CB Insights’ assessment of the tech valuation (Figure 3) landscape in Q3’23 include: Median valuations increased across all stages quarter-over-quarter (QoQ), with Series C and Series D+ startups experiencing the most significant upticks (54% and 43%, respectively). Although median valuations for Series A and B startups saw a year-over-year decline in Q3’23, seed/angel, Series C, and Series D+ startups all witnessed an increase during the same period. Late-stage deal volume slightly rose QoQ in Q3’23 but is projected to reach 436 for the entire year, reflecting a 39% decrease from 2022. This trend underscores investors’ cautious stance amid market turbulence and high-profile late-stage company bankruptcies. Notably, approximately 65% of late-stage deals in the US employed senior or tiered liquidation structures in Q3’23.