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An Alternative To Money Market Funds

August 2017

July is behind us and the amazing stock market rally has continued into early August. All three major indices reached record highs in July and the Dow Jones Industrial Average burst through the 22,000 level in early August. The July Nonfarm Payroll Report was very strong as 209,000 jobs were created, well above the estimate of 180,000. The unemployment rate ticked lower to 4.3% while the Labor Participation Rate improved to 62.9%.

The Federal Reserve chose to stand pat at its July meeting as inflation remains below the 2% level which the Federal Reserve believes is key. The Fed will next meet September 19-20. The US Dollar has dipped against the world’s major currencies. Both the British Pound and the Euro have rallied more than 10% off of their 52 week low making US exports more affordable abroad.

There have been some significant developments in Mergers & Acquisitions. Dow Chemical and DuPont announced on August 4 that all regulatory approvals have been received. Their merger of equals will be completed on August 31. Then on September 1, the combined company will trade under the new ticker DWDP on the New York Stock Exchange. 

It appears there will be significant Merger & Acquisition activity over the next year. Several Private Equity firms have raised enormous sums of money for funds targeted for buyouts. Back in March, KKR raised $13.9 billion for its latest North American buyout fund. KKR announced in July it would acquire WebMD for $2.8 billion in cash.

Last month, Carlyle announced it is seeking to raise $15 billion for its next US buyout fund and hopes to raise $100 billion by 2019 for funds focused on buyouts around the globe. Meanwhile, Apollo Global Management raised $24.6 billion in July, creating the largest buyout fund ever. The previous record was held by Blackstone which raised nearly $22 billion in 2007. Apollo purchased golf course operator ClubCorp for $1.1 billion in July. In Europe, a record sum of 16 billion Euros was raised by CVC Partners in June.

Since President Donald Trump took office in January, there have been delays in the confirmation process of Trump’s nominees for key roles in various Cabinet posts and regulatory agencies. As a result, Private Equity firms see an opportunity to make acquisitions which they can close quickly. Private Equity firms typically do not face much regulatory scrutiny when making acquisitions as compared with corporate buyers. Quite often, a corporate buyer will face extensive antitrust and regulatory reviews as was seen in the soon to be completed Dow Chemical - DuPont merger.

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