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Private Equity Eyeing Bargains Amidst Covid-19-Influenced Hurt

Investment consultant bfinance's private markets team published a research note today offering their views on how the private equity industry is being affected by the current economic climate. The report says that the private equity industry is approaching the crisis as a potential buying opportunity.

"Strategies in distressed/turnarounds and secondaries ought to find themselves in rich hunting grounds, though careful risk management is essential. Pricing for buyouts should become more attractive, although there is likely to be higher demand for perceived defensive sectors (e.g. healthcare, non-discretionary consumer, B2B tech /
saas)," says the report.

bfinance says that the immediate impact of the coronavirus-inspired economic retreat is more nuanced, however. Deal-making has slowed, distribution of capital to LPs is expected to decline, LP capital calls have not stopped, and fundraising is expected to slow down; with private markets allocations now representing a larger share of institutional portfolios, these investors need to be mindful of their overall portfolio balancing targets.

The report cautions that the medium term outlook for the industry will have a significant impact on deals, given expected valuation write-downs.

"It will take time for GPs and LPs to understand what the new world looks like. Write-downs on valuations and NAVs are likely to come through only in Q2 and Q3 reports, with Q1 valuations largely unaffected unless there is a material allocation to China / Asia. This lag must be considered when talking about the opportunities: it is likely
that investments in the secondaries space, for example, will only ramp up when we pass the current buyer-seller “expectation mismatch” stage," the report says.

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