Private equity will continue to play an important role as both buyers and sellers. In 2021, we saw a private equity consortium strike a $34 billion deal to purchase medical distributor Medline in the largest leveraged buyout since the 2008 global financial crisis. With public companies shying away from larger deals, we could see private equity doing more and bigger deals than in the past. Private equity-driven deals are likely to have higher leverage and weaker creditor protections but can be interesting opportunities to get exposure to emerging growth areas while picking up yield.
We expect higher levels of interest in health care services, given the focus on cost management, and will be looking for opportunities there while trying to avoid idiosyncratic risks such as customer concentration and excessively aggressive financial policy.
“At Vanguard, we have a global fixed income team of analysts, portfolio managers, and traders who use a bottom-up, fundamentals-based credit research process and a disciplined, collaborative approach to risk-taking,” said Sanders. “So we’re well-positioned for an investment environment like this for generating alpha through identifying securities that are likely to outperform and sidestepping those that are likely to disappoint.”
This is an abridged version of research published recently by Vanguard Fixed Income Group.