Markets Are Ready To Go and So Are We

Team Jefferies,

After an uncertain and somewhat frustrating fiscal first half of 2025 for all of us, the capital markets seem to have regained their footing, with activity progressively increasing starting in June.  Our frustration was clearly exacerbated by the high level of optimism and great expectations that permeated our industry as we entered 2025.  That said, there is absolutely no doubt that the global financial markets are now broadly open, and activity is expanding at an accelerating rate.  Earnings appear to be strong enough to justify current valuations, interest rates (while not terribly high) appear to have a higher likelihood of decreasing versus increasing, tariff drama appears to be settling down, and hopefully the geopolitical strife is finding its way to workable (if not always perfect) solutions.  We have no idea what may come next, and we are not planting the “all clear” flag at the top of the mountain, but it is clear to us that this is a very important time for us to be communicating these opportunities to our clients:

1. IPO Market is Open.  We have spent the better part of the last year getting our clients to be ready to act.  Few moved forward in the first half of this year, but increasingly more are taking the plunge now and we expect more to follow.  For those of our clients who are still on the fence, we must convey to them our opinion that the stars are probably as aligned as one can hope to achieve successful outcomes (they are never perfect).  It is important to remind them what we all know, an IPO is the start of the race and not the end.  Fair pricing and establishing the right long-term shareholder base with proper expectations for future performance will dictate long-term success.  If the first sale is the worst sale, everyone wins.

2. Debt Markets are Flush.  High yield spreads are the tightest they’ve been in quite a while.  Buyers of syndicated debt, direct lending, and bank debt are searching for quality deals.  Defaults are still low by historical standards.  It generally does not get better than this.

3. Private Equity Both Ways.  Private equity GPs have a great need to return cash to their LPs and they also have an enormous amount of dry powder looking for quality deals.  Portfolios appear to be marked appropriately, and the financing market should accommodate deal flow.  Continuation vehicles will keep providing an important conduit for liquidity, but there should be more competition from traditional buyers.  This all bodes well for increased activity.

4. Corporate Profit is Solid.  There are still ramifications and potential challenges from tariffs, but companies are adjusting and adapting, and CEO confidence is moving again in the right direction.  As we said at the start of the year before the cross currents began, there is strong pent-up demand from strategic buyers (as well as private equity), and we are sensing an increase in real dialog and action.  During the first half of the year, if more than one buyer showed up in an auction, we felt lucky.  We are slowly progressing to an environment in which, if you are the winning buyer, you feel lucky.  Psychology changes quickly and we all need to convey what we see to all of Jefferies’ clients.

5. Investing Clients are on the Hunt.  For those of us covering asset managers, it is very clear what is going on.  It doesn’t matter if our client is a giant mutual fund, a distressed-investing fund, a specific sector specialist, or a global hedge fund.  The demand for quality research, proprietary ideas, ability to execute and provide liquidity both ways, and all of the other services we provide have never been in more demand.  This is exactly how you know the global financial markets are healthy.

As we said, we do not have a crystal ball, and the environment is subject to change in our highly transparent, complex, and volatile world.  That said, Jefferies has never been better positioned from a human capital, financial capital, global, product, service, relationship, JV partnership, and brand perspective to serve our clients.  We have finished the first nine months of a very complex 2025 and have three months to go before we begin to climb our 2026 mountain.  Let’s finish this year strong and take advantage of all we have built together in service to our clients.  It feels like the environment is with us and every one of us should make sure our clients take full advantage.

Happiest when we are at our busiest with all of you,

Rich and Brian