PitchBook News - Reining in ‘shadow banking'

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The Weekend Pitch

November 19, 2023

Presented by Masterworks

(Caroline Suttie/PitchBook News)

Another week, another suggestion that the next financial crisis is hidden in the private markets, waiting to blow up. Although the veracity of such concerns continues to be debated, more regulatory scrutiny seems almost inevitable at this point.

The most recent comes from Colm Kelleher, chairman of UBS, who commented at a conference in Hong Kong last week that it is a "real cause for concern" that a large share of global financial assets now sit within the "shadow sector"—meaning, outside of banks.

"I think the next crisis, when it happens, will be in that sector," he said.

Shadow banking, a clunky term often broadly applied to any financing activity that happens outside of the regulated banking sector, has been talked about in doom-laden tones since the phrase was first coined in 2007 by economist Paul McCulley. Although McCulley initially defined the term rather narrowly, it has since evolved into an unhelpful catch-all that can include venture capital and private equity, as well as private credit.

There are two basic concerns:

1. The non-bank financial sector, in all flavors, is now so big that by dint of its size we should worry about it.

2. Any part of the financial ecosystem that isn't regulated as tightly as banks must inherently be more risky.

While it's hard to dismiss such concerns, there remains a lack of evidence highlighting specific risks.

This is the Weekend Pitch, and I'm Marie Kemplay. You can reach me at marie.kemplay@pitchbook.com.

Trivia

(Javier Ghersi/Getty Images)

After rebounding for the first six months of the year, VC investment in Germany has hit sharp declines in dealmaking, according to PitchBook's Q3 2023 Germany Market Snapshot. German startups raised €1.5 billion across 213 rounds in Q3. How much of a drop in deal value does this figure represent?

A) 4%
B) 16%
C) 37%
D) 29%

Find your answer at the bottom of The Weekend Pitch!

Bond yield rise puts squeeze on PE

(John Blottman/Getty Images)

There's a new challenge for PE firms looking to raise capital: competition from long-term investment-grade and Treasury bonds. Institutional investors faced with weaker returns and continued risk in the private markets will likely be tempted by long-term bonds, whose yield reached 15-year highs in October.

Our latest Quantitative Perspectives report, The Waiting Game, explains this long-term challenge in PE, partially grounded in its exit shortfall.

PE finds strength in numbers with European football

(Photo and Co/Getty Images)

PE continues its love affair with European football, but firms are no longer content with owning a single team. Multi-club ownership is becoming increasingly common. Sponsors, largely in the US, are seeing benefits with player transfers and scouting from investing in more than one club.

This trend is highlighted in Pitchbook's analyst note Private Capital in European Football: Part II and our new European football dashboard.

VCs still hunting for big gaming winners

(Gilaxia/Getty Images)

Despite difficult headwinds, VCs are still backing game studio startups, hoping to find the next big blockbuster. Investors are betting on gaming analytics startups that collect player information and identify trends to help create new, more-engaging experiences.

Those startups are profiled in PitchBook's Q3 2023 Gaming Report, along with an update on the nascent Web3 gaming space.

Quote/Unquote

Carlyle CEO Harvey Schwartz (Patrick T. Fallon/Getty Images)

"Every single expense is on the table, I tell you. There's no such thing as a sacred expense."

—Carlyle CFO John Redett during the firm's quarterly earnings call, discussing cost-cutting strategies after a disappointing fundraising quarter.

Stay tuned

Keep an eye out for these insights and research reports coming out this week:

Q3 2023 Clean Energy Tech
Analyst Note: Generative AI VC Trends
Q3 2023 European VC Valuations Report
Analyst Note: The Role Banks Play in the Japanese Venture Market

Trivia

Answer: D)

German startups saw a 29% decline in their deal value in Q3. Before this last quarter, VC investment was on the rise. You can read more about Germany's VC decline here and here.

This edition of The Weekend Pitch was written by Marie Kemplay, Emily Burleson, Jacob Robbins and David Stevenson. It was edited by Andrew Woodman and Ron Prichard.

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PitchBook News - Reining in ‘shadow banking'

Trivia

Bond yield rise puts squeeze on PE

PE finds strength in numbers with European football

VCs still hunting for big gaming winners

Quote/Unquote

Stay tuned

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