As the lockdown continues across the country, some of the observations made earlier this summer still ring true: During the GP panel of our virtual forum, “Private Equity Summit Goes Virtual,” three trends emerged among the GP panel and audience of GPs and LPs.
Cash is king
Although governments and regulators offered capital markets, the resurgence of the virus spread has left countries unable to recover from revenue declines, according to one GP who said, “We’d never underwritten a downside case to assume revenue goes to zero or declines greater than 50%.” In the place of external monetary stimulation, the COVID demand shock has led to a hoarding of cash, amid expected lower cash flows and higher leverage going forward.
Technology rising
The prospect of future plant closures or shutdowns have accelerated the implementation of automation in high-employee businesses like manufacturing businesses. When asked whether they were interested in increasing exposure to B2B software or SaaS, 67% of the webinar’s allocator participants said yes: “alpha generation plus lower beta”; 33% said, “maybe - would like to know more; 0% answered, “No – prefer oil, commodities, commercial real estate.”
Raising (manager) capital
Without investors’ ability to get to know a manager over coffee, dinner, lunch and office visits, managers with established LPs are going to raising much more capital than first- or second-time fund managers – to the detriment of the industry relying on new-fund formations to serve the small and niche end of the market. On the bright side, now that investors are not traveling, they are more willing to be on call – literally, on Zoom. When asked how optimistic the GPs and LP audience members were relative to late March, 48% said, “More”; 19% said, “Less”; and 32% said, “No change.”