Rising interest rates increase financing costs, dispelling notion that private market assets only go up.
Investors will soon have a way to protect their private equity (PE) investments against the risk that rising interest rates will depress returnsin the asset class. The Private Fund Forward ExchangePrivate ExchangePrivate Fund Forward Exchange (PRIFFE), which is due to launchin late June, will be the first platform dedicated to trading options, swapsand forwards that hedge investments in PE funds. It will be operated by Xtal Strategies, a company regulated by the UK’s Financial Conduct Authority.
PE has been one of the best-performing asset classes of the lastdecade. However, Xtal’s chief executive, Massimiliano Saccone, believes this has lulled some investors into a false sense of security. “No one has ever hedged private equity,” he says. “Everyone I’ve spokenwith says ‘oh, private equity goes up’.
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