Delivering Global Macro Investment Insights

DeSaque Macro Research

DeSaque Macro Research Limited was formed by Said DeSaque in April 2012 with the view to delivering global macro investment insights aimed at providing new ideas to clients.

Said DeSaque has over 26 years of experience working as a professional economist in financial services. Prior to establishing DeSaque Macro Research, Said held positions as Senior Economist at Robert W Baird and William Blair. He began his career as a graduate at PaineWebber in 1986, where he eventually became Head of the London Economics Department.

Said takes a very keen interest in international relations, along with their implications for economic development. His research interests include the economic transformation of China and its implications for global capital markets, particularly in the United States. He is a member of Chatham House in London.

The US economy and capital markets have historically been Said’s main focus of attention. He frequently presents his views to institutional investors in diverse geographic locations. In recent years, Said has also been carefully monitoring economic developments in Asia, particularly China and Japan.

Elevated US Corporate Cash Levels to Underpin M&A Activity, but Leverage Will Rise Still Further

Global Economist, DeSaque Macro Research

Said Desaque

Global Economist

Cross Asset Strategy

Net issuance trends for US Treasuries and equities have diverged sharply since 1984, but the absolute valuations of both asset classes are expensive compared to history. Strong net equity issuance in 2020 H2 has led some commentators to conjecture that the prolonged era of shrinkage may have ended.
Since 1984, companies have generally remained private for longer and their businesses are less capital-intensive than previous eras, thereby contributing lower levels of gross equity issuance in public markets. Meanwhile, merger and acquisition activity (M&amp;A), both strategic and buyouts, have contributed to a withdrawal of equity supply from the open market. The depressed Q-ratio for US equities between 1984 and 1990 indicated that buying quoted companies made more sense for new entrants than starting from scratch, producing a sharp rise in buyout activity during the aforementioned period.
Meanwhile, buybacks have become the dominant distribution policy option for corporations, partly due to tax considerations, but their impact on aggregate equity supply has probably been overstated due to their opportunistic nature.
The attraction of boosting the equity component of the US capital structure has diminished in recent decades due to the falling cost of debt and advantageous tax treatment of interest compared to dividends. Meanwhile, gross equity issuance has been hindered by more onerous legal and reporting requirements for potential new listings, such as the Sarbanes-Oxley Act, while access to alternative sources of capital, notably private equity and venture capital, have given companies the ability to stay private for longer. Over time, private equity firms have scaled-up deal sizes, while IPOs are no longer the automatic exit choice for venture capital firms.
The continued shrinkage of US equity supply will depend on the enthusiasm of investors to increasingly allocate assets in favour of private equity and venture capital, particularly if legislative changes make it easier for defined contribution pension funds and private investors to participate in these asset classes. Meanwhile, the recent SPAC issuance boom is not the harbinger for a new and elevated trend due to the likelihood of greater competition from stock exchanges in realms of conventional IPOs and direct placements. SPACs are also expensive and deal quality could become an issue, particularly given the rise of private investment in public equity (PIPE) funding, whereby investors expect IPO exits to bestow high returns.

Net issuance trends for US Treasuries and equities have diverged sharply since 1984, but the absolute valuations of both asset classes are expensive compared to history. Strong net equity issuance in 2020 H2 has led some commentators to conjecture that the prolonged era of shrinkage may have ended.
Since 1984, companies have generally remained private for longer and their businesses are less capital-intensive than previous eras, thereby contributing lower levels of gross equity issuance in public markets. Meanwhile, merger and acquisition activity (M&amp;A), both strategic and buyouts, have contributed to a withdrawal of equity supply from the open market. The depressed Q-ratio for US equities between 1984 and 1990 indicated that buying quoted companies made more sense for new entrants than starting from scratch, producing a sharp rise in buyout activity during the aforementioned period.
Meanwhile, buybacks have become the dominant distribution policy option for corporations, partly due to tax considerations, but their impact on aggregate equity supply has probably been overstated due to their opportunistic nature.
The attraction of boosting the equity component of the US capital structure has diminished in recent decades due to the falling cost of debt and advantageous tax treatment of interest compared to dividends. Meanwhile, gross equity issuance has been hindered by more onerous legal and reporting requirements for potential new listings, such as the Sarbanes-Oxley Act, while access to alternative sources of capital, notably private equity and venture capital, have given companies the ability to stay private for longer. Over time, private equity firms have scaled-up deal sizes, while IPOs are no longer the automatic exit choice for venture capital firms.
The continued shrinkage of US equity supply will depend on the enthusiasm of investors to increasingly allocate assets in favour of private equity and venture capital, particularly if legislative changes make it easier for defined contribution pension funds and private investors to participate in these asset classes. Meanwhile, the recent SPAC issuance boom is not the harbinger for a new and elevated trend due to the likelihood of greater competition from stock exchanges in realms of conventional IPOs and direct placements. SPACs are also expensive and deal quality could become an issue, particularly given the rise of private investment in public equity (PIPE) funding, whereby investors expect IPO exits to bestow high returns. 

Goodbye to the Golden Era of US Equity Supply Shrinkage? Not So Fast!