GPs to focus on capital deployment and stabilising health of portfolio companies in next 12 months

Almost half (46%) of private equity professionals cited the availability of attractive assets at lower prices as key to shaping their outlook for the year, suggesting that GPs are keen to acquire new investments at post COVID valuations.  A third (33%) of respondents believe that sentiment will primarily be driven by the need to stabilise the health of their portfolio companies.

When assessing the impact of COVID-19 on fundraising activity, respondents sounded a more cautious note: over three quarters (78%) predict that raising capital will become harder over the coming year of which 15% think it will be significantly harder.  Just 11% believe fundraising will become easier.

Intertrust’s survey also highlighted the steps taken by private equity firms to mitigate the increased cyber security threats brought about by COVID-19; half (50%) of respondents said they would be prioritising increased investment in their in-house cyber security, 45% will be boosting their IT spend while 42% will be making changes to their firm’s corporate governance and operational processes.

Ian Lynch, Chief Commercial Officer at Intertrust, said: “COVID-19 has presented the private equity industry with an unprecedented series of challenges to many aspects of their operating model.  We’re working closely with our private equity clients to help them to successfully deal with the most pressing issues such as mitigating the effects of delayed fundraisings, managing existing funds and capital and safeguarding against increased cybersecurity threats as working from home becomes the new reality.”

Silke Wood, Head of Sales UK and Nordics, Global Head of Consultants, Tikehau Capital and guest panellist at the webinar, said: “Delayed fundraisings are an inevitable consequence of COVID-19 and many GPs will have no option but to extend their timetables to reach a successful close.  Given that new LPs are understandably reticent to allocate capital without face-to-face interaction, existing LPs represent the best source of capital for established funds.  GPs can use this time to agree re-ups and revise their fund documentation to ensure it’s ready for use once the restrictions have been lifted.  We’re seeing strong demand from LPs in our distressed and special situations credit strategies, particularly ‘clean vintage’ products that incorporate post COVID-19 pricing.”

Klaus Müllner, Partner, Executive Director, Argenthal Capital Partners and guest panellist at the webinar, said: “As we enter a changed world, LPs will be increasingly attracted to first time funds that can capitalise on a fast-evolving market by demonstrating a flexible, opportunity-driven investment approach. LPs also tell us that they are looking for proven operational experience in areas such as restructurings and transformational change. We should also make allowances for a significant reduction in the amount of leverage available for new investments but there may be opportunities to benefit from Government leverage too.”

Viktor Tadijanovic, Chief Technology Officer, Drawbridge Partners and guest panellist at the webinar, added: “Most private equity business continuity plans haven’t accounted for an extended period of remote working on a global scale. Cyber criminals have been quick to exploit this, and we have seen a large increase in sophisticated COVID-19 themed phishing attacks. The rush to remote working has exposed deficiencies in home set-ups and in some cases security risk has also be compromised in the rush to provide additional capacity in popular areas such as video conferencing.  COVID-19 will lead both LPs and GPs to review the effectiveness of cybersecurity programmes and there will be greater focus on ensuring portfolio companies are fully compliant in this area too.”

¹Survey conducted among over 100 private equity professionals during the Intertrust webinar on 9 April 2020