Video: How the Private Market Has Responded During Times of Capital Market Volatility
Prudential Private Capital's Brian Thomas, Dianna Carr and Michael Campion describe how the private placement market responds to businesses during times of capital market volatility.
The private placement market is often seen as more stable than the public debt markets, and is “open for business” at times when the broader public debt and financial markets are “closed,” particularly during periods of crisis.
The capital companies can access from the private placement market is on a negotiated basis, sourced outside of traditional public issuances or bank market funding. The private placement market is largely comprised of insurance companies, pension plans and other institutional investors.
Private placement providers differ from banks in that the capital they have to deploy is traditionally more stable than the capital the bank market relies upon; reason being that insurance companies and pension plans are not materially exposed to the same short-term liquidity risk. This was most acutely demonstrated during the 2008-2009 financial crisis, as many private placement lenders continued to provide capital, while many banks limited their lending availability to preserve corporate liquidity.
In general, the private placement market consistently demonstrates its ability to remain open during a crisis and finds a way to fund the capital needs of companies during periods when the public debt markets and/or the bank market may not be accessible. Thus, the private placement market is typically characterized as being patient and long-term focused, it does not react rashly to short-term, temporary dislocations in market appetite.
“Most private market investors really view providing capital to their companies as a partnership, and so in times of trouble or volatility or the company becomes very challenged, that's really where the investor can show their true colors; really take the approach of ‘We're going to weather the storm together,’ and both come out successful on the other end.” - Michael Campion, Vice President, Newark