Monroe Capital’s Chris Lund: Likely Fed hike ‘shouldn’t move the needle’ for PE

Good morning, dealmakers. MK Flynn here with the Wire.

Just a blip. With inflation data likely to prompt the Federal Reserve to raise interest rates higher than expected this week, we’re asking our sources what the impact will be on private equity-backed deals.

Chris Lund, Monroe Capital’s co-portfolio manager, institutional vehicles, hopped on a quick call with me early this morning to share his insights.

An interest rate hike by the Fed of .75 versus .50 “shouldn’t move the needle for any PE firm,” Lund said.

“If any deal a PE firm is going to make is not attractive because the LIBOR and SOFR rates are 4 percent instead of 3 percent, it’s probably not a deal they should make in the first place,” he said.

“The best thing possible for the US economy, the middle market and PE firms, is for the Fed to get inflation under control as quickly as possible, so more action sooner is the best thing for the industry.”

Lund pointed out that 2022 was always expected to be a slower year for PE than record-breaking 2021. “There’s no question that dealflow will be down this year.”

With all the volatility going on in the public markets, there’s a slowdown right now, resulting from a “resetting of buyer and seller expectations.”

But, eventually, “price discovery will do its work, and then buyers and sellers will transact.”

For private equity’s five-year time horizon, the “air pocket” between buyers and sellers today is just a “blip,” Lund said.

What are your thoughts? How will higher interest rates and higher inflation affect your deals?

I’d love to hear from you at mk.flynn@peimedia.com

Wealth management. As we enter a new economic cycle with a new set of challenges, it seems likely that more people are seeking investment advice.  To that end, we’re seeing more PE deals involving wealth managers.

Last week, Lovell Minnick Partners announced the acquisition of London & Capital, a wealth manager based in London.

London & Capital is poised “for organic and inorganic growth in what are largely fragmented markets both locally and internationally,” said LMP partner Spencer Hoffman.

Read the whole story here.

PE Hub reporter Nina Lindholm spoke with folks from LMP and London & Capital, and she’ll have more on that deal later in the week.

More money. Just yesterday, Genstar Capital announced an investment in Cerity Partners, which is based in New York.

With approximately $50 billion in AUM, Cerity says it is one of the largest and fastest growing independent full-service wealth managers in the US. Read the whole story here.

Genstar is leading a recap of the company, and long-time investor Lightyear Capital remains an investor.

Cerity is “well-positioned to achieve outsized growth,” said Genstar managing director Tony Salewski.

We’ll be looking for more transactions in the wealth management sector.

That’s all for now.

Buyouts’ Chris Witkowsky writes the Wire on Wednesdays, so I’ll see you on Thursday.

Until then,

MK