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Private equity in the current environment

Investments
COVID 19 Coronavirus

September 30, 2020

Is the current market environment favourable for new private equity investments?

As the COVID-19 pandemic continues to spread around the world, and with economies reeling from the impact of lockdowns, we have entered a deep global recession.

With economic forecasts for the year 2020 projecting real GDP globally to drop significantly, portfolio managers are having to rethink both tactical and strategic asset allocation. In this environment, alternative investments and private equity in particular have moved into focus and institutional investors are considering whether today’s market environment, or a recessionary environment in general, is a good time to commit capital to the asset class.

Private equity fund vintages that started to invest during the last two global economic crises have actually outperformed others

Historically, private equity fund vintages that started to invest during the last two global economic crises have actually outperformed other vintages that started to invest two to three years before a recession or more than five years after one.

So why is that and what are the key drivers of this performance?

  • Dynamics in deal valuations
  • Lower use of leverage
  • Long term nature of the asset class
  • Control ownership

The nature and dynamics of the asset class gives it the attributes to weather downturns and deliver strong returns as the global economy recovers. For those taking a selective and disciplined approach, allocating to long-term thematic trends, such as the shift to e-commerce or the increasing use of technology in our lives, we believe that today’s market environment offers as good an opportunity as ever to make commitments to the asset class.

See the below paper to explore this in more detail.

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