A Primer: Capital Markets in Private Equity

Capital markets professionals at private equity firms typically work on arranging debt financing for new investments or in support of portfolio companies owned by the funds.

These professionals may also lead equity financing initiatives or equity syndication to LPs and other co-investors. In some cases, these teams are structured as broker-dealers who advise, structure and execute across a broad range of complex financing transactions with the additional flexibility to act as a capital provider in select situations.

Capital markets teams increase returns, improve risk management, and support efficient scaling of the investment firm.

1. Increase Returns

Capital markets professionals can provide optimal capital structures and an enhanced ability to execute given their market knowledge, relationships, and focused experience.

2. Improve Risk Management

Increasingly complicated capital structures, bespoke covenant agreements, and a greater number of lending relationships require constant monitoring and dedicated focus to reduce downside risk across the entire fund portfolio and capture opportunities on a more consistent basis.

3. Enable Efficient Scaling

Capital markets professionals bring focus and expert partnership that can deliver greater performance while freeing up other professionals to focus on their respective responsibilities.

Despite the performance premium correlated to dedicated capital markets capabilities across small and large fund sizes, capital markets capabilities today mostly exist in larger firms.

Out of the Top 50 PE firms (ranked by capital raised over the last 10 years), over 80% have dedicated capital markets professionals. Of the next 200 Top PE firms, only 36% have dedicated capital markets professionals.

Capital Market Professional Role Increasing

An indicator of the increasing interest of Private Equity firms in capital markets professionals can be seen in the increasing number of personnel movements in the industry. Our analysis of LinkedIn Sales Navigator data reveals that 50% of professionals in capital markets roles at Private Equity firms joined their current firm in the past two years.

How Termgrid can help

For firms that already have a capital markets function, our technology can scale and advance their current capabilities by:

  • Providing real-time insights for data driven strategic lender engagement, negotiation, and portfolio management
  • Streamlining deal execution, unifying and digitizing workflows to increase team capacity, and reducing transaction costs
  • Improving risk management, oversight, and optimization with a centralized source of truth

For firms that do not yet have dedicated capital markets resources, Termgrid can help establish them by:

  • Driving consistency across deal teams, connecting collective experience and data to standardize best practices
  • Institutionalizing capital markets knowledge and processes so the firm has a solid foundation to scale
  • Increasing the productivity of deal teams so they can focus on equity instead of debt underwriting

This primer was original published as part of a report looking at the impact that capital markets professionals within private equity firms have on their fund return profile.

To read the full report click here.