An overwhelming majority (90%) of US private equity fund managers expect to see a rise in the volume of distressed fund transaction activity over the next 12 months. Due to the impact of COVID-19, almost half (46%) of respondents believe that mismatches in valuation expectations between buyers and sellers will restrict deal flow.
Intertrust, a global leader in providing tech-enabled fund and corporate solutions, interviewed around 150 private equity fund managers across Europe, North America and Asia to identify the risks and opportunities facing the industry in light of the COVID-19 pandemic.
Distressed strategies are also likely to benefit from an improved fundraising climate, which for most other fund types is expected to worsen. 81% of respondents in the US expect the fundraising climate for distressed funds to improve over the next 12 months, of which 39% say it will significantly improve. Venture funds are expected to see the biggest drop in investor appetite with 79% predicting fundraising conditions will worsen.
As the private equity sector adjusts to a rapidly transformed landscape, the study revealed a growing interest in the role that private debt can play during and after the crisis. Over a fourth (29%) of private equity investors in the US are planning to diversify into direct lending strategies over the next year.
Despite the volume of dry powder in the market, the research highlighted the underlying sentiment of caution gripping the private equity industry. Nearly three quarters (73%) of US investors expect private equity firms to be driven by the need to stabilise the financial health of portfolio companies, while over half (54%) believe GPs will be ‘in defence mode’ until the impact of the virus is fully understood.
In terms of measures being adopted by GPs as a direct consequence of COVID-19, the most common is fund term extensions. 76% expect to see term extensions for funds nearing the end of their term to be introduced to allow more time for deployment.
Despite the challenges ahead facing a profoundly altered market, the study reveals that there remains some positivity in the industry. Nearly a third (31%) of US respondents believe the environment for private equity will improve and around half (47%) say they are optimistic the industry will be able to face the pandemic and, ultimately, come out stronger over the next two years.
James Ferguson, Head of Americas at Intertrust, said: “Our study reveals that distressed-led activity is set to be a defining theme for the year, with the existing high levels of dry powder in the market expected to act as a catalyst for high-profile market transactions”.
“While the COVID-19 pandemic represents one of the biggest tests the US private equity industry has ever faced, the sector is proving its adaptability in the face of such risks. For those US firms brave enough to enter the market in the next 12 months, they could find tremendous opportunities even though fund term extensions point to a sustained slowdown in deal flow.”
To download the full Global Private Equity Outlook 2020 report, please click here.
1Research was carried out in April 2020 by Citigate Dewe Rogerson, on behalf of Intertrust. A total of 143 responses were gathered from private equity fund managers across Europe, North America and Asia via an only survey sent to a global database of private equity professionals provided by Intertrust and Preqin.
Intertrust (Euronext: INTER) is a global leader in providing tech-enabled corporate and fund solutions to clients operating and investing in the international business environment. The Company has more than 3,500 employees across 30 jurisdictions in Europe, the Americas, Asia Pacific and the Middle East. Intertrust delivers high-quality, tailored corporate, fund, capital market and private wealth services to its clients, with a view to building long-term relationships. The Company works with global law firms and accountancy firms, multinational corporations, financial institutions, fund managers, high net worth individuals and family offices.