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What’s Behind the Record Level of Equity Issuance?

2021-04-09

Goldman Sachs’ Benny Adler, co-head of the Americas Franchise Trading team, explains the supply-and-demand dynamics behind the “unprecedented’ amount of equity issuance. 

This is an unofficial transcript meant for reference. Accuracy is not guaranteed.
Welcome to our exchanges at Goldman Sachs market Update for Friday April. Ninth each week we check in with the leader across the firm to get a quick take on what they're watching in the markets this week we're going to look at the an ideal and related equity assurance and the outlook for markets going forward objects. You were coming out of corporate communications. Your government I am delighted to be joined by many others. A legend CO head of America's franchise trading Benny night. see you're welcome to the programme around so big easy busy here for you, we ve seen a record level of ip owes its backs in the market. This year gives us a sense of the scale of activity that you ve been seeing. He assured Look, it's really been a slow builds, a crescendo, that's happening. You want really described the whole last twelve months. Is it found reallocation of capital throughout our economies, its largely floods or equity capital markets, but the first quarter is really an unprecedented in terms of the level of activity,
airports numbers around it just over two hundred and fifty billion dollars of registered equity paper came to the market in the EU. I sat in the first quarter. That would be a slightly below average year over the last decade, familiar really stands out in that number of two hundred fifty billion or two categories. The first, our ideas of operating companies are the traditional ideas that we all know and get a lot of brass forty Billy and operating company ideas in the first quarter. So your average over the last decade is fifty billion so really really extraordinary. Levels of activity for a single quarter, even more Mary is the level of issuance stats. Ninety five billion about Kyoto is raised by stocks in the first quarter, black embarrassed three billion dollars last year for the entire year, a hundred seventeen billion dollars over the last five years so really extraordinary. levels of activity in the operating company idea. That's back ideas, so Benny with a bit more about the scale of the additional supplies in marked where's it all coming from you-
The reality is that two hundred and fifty billion dollar registry equity paper number brilliantly, scratches the surface of the total supine some to the market and the less obvious animals, or at least, is elevated as the biggest stuff. So look there's a few different pockets. Europe, worth mentioning or touch on thirty. At all, pretty robust first, you know it. We didn't talk about twenty twenty I'd, be all activity much but It was the second busiest year on record with eighty four billion dollars of ideas onto the market in the less the vast majority concentrated in the second half of the year, when it comes doesn't idea, typically LE shares, not sold me I'd, be our subject were locked up for a period of time to play that three to six months in the first you're getting that point of being, for it is six months removed from the ideas it's always locked up had started to expire and in any case, that friends, multiples of dollars.
and the idea of the market in sort of much less obvious cell bounds, but of one cell phones by pre idea of others. The second big pocket of spy system from all these facts, as they affect the murders, the holders of the companies that they buy, plus the speck sponsors plus fell to invest in pipes associated with these back process. All comprehension is that are usually several times. The national value of the dollar is actually raisins back. So I think this. something like a bit over a hundred billion dollars of stack dry powder seeking targets, but when these funds, open up, they do Margaret you'll get multiples of that under billion dollars coming through the market over the months importers to follow, spat, murders, closing and they find we ve Mass adopted en bloc activity over the porter, but really just over the last few weeks, and so, if I'm, those three sources of supply with the obvious register backwards, and this Martin has just been asked I just a truly unprecedented amount of equity. Spot, ok,
That leads to the demand side. You talked about me. Markets exists to reallocate capital, so our investors thinking about this and has the additional supply affecting the way their positioning their portfolios. Are they selling off existing equity too better. They just have dry powder. Yellow you get. Certain level fullness. You run out of dry powder, and so they are left with no choice but to reallocate- and so that's what's happened- The numbers are android powder. I think you will find tat. Balances are below two percent in its lowest level on record. So when new paper comes to the market, the dollars have to be funded somewhere and in a lot of that is being funded by banks which ran back up in the market in a big way, that's being funded by in flood mutual finds it by individual investors may mark balances of come down, but are still very elevated levels starkly. So there is right out there, but the big places is manifested itself over the last six weeks in space,
a Brophy equity sectors like TAT Healthcare communications come under a lot of pressure. Now will call the bees are the same There's the rate of less higher for most of the really entirely at the post, global financial, spirit over the last ten years, but really since the start of twenty twenty and Lee the equity paper that some of the market has really been concentrated, brought space The vast majority of the ideas that we ve seen any growth companies in sectors like elsewhere in communications and so the growth sector, the growth spaces, as we like to measure them gradually under performed value, starts by twenty five percent over the last six or seven weeks. Better start, a very large number two, but the context from Jan twenty four hello, I'm February out, performed by fifty percent or twenty five assembled six weeks is alot now more going on here than just supply side of the equation: interest rates of move, higher growth stocks and the under performance rate still ire and importantly, people have been re
positioning portfolios to get more exposure. The reopening of the economy, which is now very much a visible and happening a bent and both sides have been a source of funds. The vat as well, so that sort of getting it with a double whammy: higher rates, rotation in Timor Cyclical said, there is little benefit from reopening and unprecedented levels of supply So far, the rotation is from old growth to new growth. We just the Peter Oppenheimer's, one of our colleagues and research on the pod gas talking about his new research on bubbles, giving your time in the capital markets face your deeds? any powers between the ninety nine two thousand dot com period and the explosion. When seen in equity issuance this summer house twenty two year old, get fresh out of God in two thousand. When I started here, but do I worry that certain areas- yeah look, we ve seen some well publicize pockets of progress in the market not can get into specific names. But what I heard by is how quickly all these pockets had seemed to self correct well before they become assistant problem, the ninety nine.
Two thousand period was a much much more systemic problem, much much further than we thought now. It was much much more widespread and it had much prior applications to the economy and by the way people like to forget that when that bubble burst five who was one of the shell was professions a bunch insisted on a more macro, broader equity level, with the Essen people really sitting at an all time high. I find myself abortion constructive as I've been at any time in my twenty one, your career and the reason for that is really very simple and often not everything. These things is the right approach, the? U S, economy is going to grow over six percent this year and interest rates are one point: seven percent and we re born higher over the last few weeks, but one point seven percent is the start, will only put that in context. For the last time you Its economy grew over. Six percent was nineteen. Eighty four interest rates were thirteen percent, be single best predictor of start prices over the last decade. Boss has been
something called the FED model which basically just sat prices, are a function of the difference between them in view of stocks and the rest freeway stocks are in their forty percent I'll values based on that matter, stocks are cheap. The economy is going to grow at a very above trend rate, probably for several years, and that leads me very, very constructive. On the overall, I put a market despite some markets affront you know that you're probably to be expected- and software acted very quickly for as many updating myself. But when I was going to college, I a little bit of money and money market, and I think I was learning double digit percentage on that. So one point, seven sounds awfully load may, even if it's up a bit so I'd be remiss in not matching that you led the firms trading efforts in capital markets transact, and you are also legendary, in the industry for euro managing the open for the ip that we run, which now stand at close to four hundred talk alone that's him the lessons we have learned over twenty years of doing that. What was a thrill
I just want to get everything. Look a few things stand out. The first is that markets are never as good as they seem. There is. What is this? during the best of times. They are never as bad as they feel their worst of times. What stands out about market wearing right now is the stable, which were traversing between sparing euphoria, but that less than that it's just over a year ago, and I cannot remember market that felt worse than third week of March of twenty twenty and at the same time, I really can't remember a lot of markets that sell better than the first few weeks of this year. It's not a war on. I think bed pockets are actually in a more sober place today. For a lot of reasons, we talked about with the growth training slowed down, select first and second thing. Instead, Is there? A consistent approach? Is gonna wind and trying to private approach to the signal fluctuations of markets is not an approach, its network, we always the customers burst of issuers and investors, and we take a company public what
always focus on and in what is served ass, our issuers and our investors very well. As focusing on getting that company and a black list of shareholders and a puzzle, bastards, they have won the most valuable assets up. You can add ons, I've always, but that all first and then I found everything else like the price of the start, tends to follow. If you get that right- and you know, I think, the last saying that stands out for me, and maybe this is the last of our lesson. More of an aspiration is that through this tremendously busy time and equity capital markets, We are seeing equity capital markets a bar in the process of change and away at a much faster pace than he had suddenly. I might we're, probably at any time in MR. It knows recently is five or six years ago, if he were company that wanted a public and the United States. You basically had one option is to do, and I feel today, by a range of options, you can do a hybrid blind booked up what we ve done. So
we're very successfully over the last year. You can do your listing. He can merge with his back and all of those different options are evolving simultaneously and companies with a lot of different balls, said the goblet, and we have a way more tools today than we did just a few years, got out and achieve those goals bombings in the middle of that evolution and its. For so many reasons. really exciting, backed up with capital markets are identical thanks for sharing your perspective without size learn a lot from my time chat with you. So thanks for joining us today, in sharing your wisdom about that conclude This episode of Exchanges Goldman Sachs. Thank you very much for listening and if he enjoyed the show, you hope you subscribe and Apple podcast and leave a rating. Our economy is podcast was recorded
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Transcript generated on 2021-07-01.