This news service looks at private equity and related private markets investors, such as those focusing on distressed opportunities amid the current extraordinary global economic slowdown.
COVID-19 has hit global economies with a sledgehammer and prompted investors in the private markets field – debt, equity, infrastructure and property – to fret about valuations to existing assets and wonder if they can snap up opportunities.
The term “vintage” – applying to the year when an investment was initiated (like when a grape is harvested) – may be looked at particularly closely in future if managers can buy assets on the cheap. Those funds that were “bottled” when markets were on the floor might hopefully taste wonderful as and when there is a recovery. (Of course, as any serious wine collector knows, it is wise to hold a range of vintages rather than shoot for the “perfect” one.)
Another feature of virus-roiled markets is that some funds that had thought of closing their doors to new money might open up again in the current environment.
That is the view of Heather Jablow, managing director, Private Client Practice, and Philip Walton, managing director, Private Client Practice, for Cambridge Associates.
“Prices are dropping and should create opportunities in a number of areas,” Walton told this news service. For example, technology and healthcare sectors are worth examining given their growth potential. On the flipside, he said, there are also some distressed investing opportunities in parts of the cyclical manufacturing sectors.
Cambridge Associates provides investment services to organisations and private clients including endowments and family offices. Unsurprisingly, the team is busy.
An ever-present area of work is monitoring clients’ liquidity needs, as well as tracking distributions from investments, calls for capital, and tax payments, Jablow told this news service.
As private markets investing is typically far less liquid than for, say, listed equities or cash, such close monitoring of clients’ liquidity needs is particularly important. “It is critical to understand and plan for liquidity needs in both normal markets and in stressed markets, when the circumstances of clients may change,” she said.
The distressed players are on the move. According to the Wall Street Journal (3 May), Apollo Global Management plans to raise money to capitalise on demand for loans during the coronavirus pandemic. The US firm expects to raise $20 billion over the coming year, emphasising credit strategies designed to take advantage of economic dislocation.
Private-equity firm General Atlantic is teaming up with veteran credit investor Tripp Smith to launch a roughly $5 billion fund (WSJ, 14 April). Such operators, also nicknamed perhaps unfairly as “vulture funds”, typically target assets trading at a significant discount, and restructure a business to pocket a profit. While they can be attacked for exploiting tough times, arguably they are vital to a free market system where capital can be put back to profitable use rather than fall idle.
Distressed investors have to move fast. According to a report by Bain & Co, in the past two downturns, the average leveraged buyout purchase price multiple sank by about 20 per cent from its high but then recovered most of that within two years.
Source: Bain & Co