How a Bear Macroeconomy Can Mean a Bull VC Secondary Market

The current global economy is unlike any we’ve seen in recent memory. Inflation hasn’t topped 7% in the US since the early 1980s, and the Fed has not utilized rate hikes in a sustained way to cool the economy since that period. In public markets, rising rates and the possibility of a recession have caused investors to reassess the value of risk assets. These dynamics have led to a steep decline in all public market indices this year. Naturally, with rising rates, longer-duration bond portfolios are similarly underwater.

It is undeniable that these economic pressures have presented institutions with short-term challenges. However, for investors with a long-term view and the ability to dynamically allocate capital, we believe there is a silver lining. The secondary market is one of the few spaces in the alternative investment universe that may be considered somewhat countercyclical. Generally, when the economy contracts, the opportunity set expands, and the pendulum swings in favor of the secondary buyer. While this is a widely accepted characteristic of the market, the factors that contribute to this dynamic are less understood. Here, we will unpack why we believe the volume, quality and attractiveness of the opportunities afforded to our VC platform in the coming years may surpass any previous era.