Glossary
Returns and fees
What is market regime?
The prevailing pricing and risk environment.
Stable, tightening, risk-off or distressed. The same terms are generous in one regime and uncompetitive in another, and the regime changes without asking your permission.
A worked example
In a calm market a sponsor might pay 11x and borrow 6x. When rates rise and the market turns risk-off, the same company might trade at 8x with lenders capping debt at 4.5x, so the equity cheque has to cover far more of the price.
Where it catches you in the game
- Regime shifts each year, moving deal supply, pricing and breach rates.
It comes up most on the buy-side analyst desk, the hedge fund desk, the asset management desk and the quantitative investing desk.
Related terms
Learn it by using it
Definitions stick once they've cost you money. Take a seat, make three calls a year and watch what market regime does to your returns.