Coronavirus hinders LP investment activity: survey

“It might not be because of the coronavirus directly, but certainly because of all that’s being done to prevent or slow the spread of it”.

As the coronavirus pandemic continues to spread and rattle the global economy, institutional investors have seen an impact on their investment and personal business activities, according to a fresh survey from Eaton Partners.

Approximately 70 percent of the 69 LPs surveyed said their investment activity has been affected by the coronavirus crisis, while 30 percent have not been impacted, Eaton Partners’ March 2020 LP Pulse Survey shows.

Peter Martenson, a partner at Eaton, tells sister title Buyouts that GPs and LPs were blindsided at how the coronavirus response would affect their portfolios. “It might not be because of the coronavirus directly, but certainly because of all that’s being done to prevent or slow the spread of it,” Martenson said.

On Sunday, the US Federal Reserve made a series of emergency moves to encourage banks to continue lending, including cutting the benchmark interest rate to a range of 0 percent to 0.25 percent. Despite the Fed manoeuvres, public markets cratered, with the Dow Jones Industrial Average falling nearly 3,000 points on Monday.

LPs agreed with the market: 70 percent of respondents said the Fed moves were not the right solution in dealing with the coronavirus fallout.

LPs are being proactive: many public systems and other types of institutional investors are restricted travel and are taking only video or phone meetings.

“The biggest immediate impact has been affecting our staff’s capacity to travel,” Rhode Island Investment Council’s director of communication, Evan England, said. “We’ve also postponed a few individuals who were [supposed] to come to the SIC meeting.”

Around 75 percent of institutional investors surveyed said their personal business activities have also been affected because of the virus.

“This business is about personal interactions before a transaction is done,” Martenson said. “LPs need to see a GP, just to get to know them and they typically need to go on site.”

Lack of face-to-face meetings may stall fundraising on newly launched funds and funds that were getting ready to launch, according to Martenson.

Around 29 percent of investors said coronavirus will have the most significant impact on their second-quarter investment strategy, according to the report. The majority of LPs, 33 percent, said a possible US recession will have the most effect on their Q2 strategies.

Despite the fears, according to Martenson, institutional investors are optimistic that a deeper economic downturn won’t happen, and there may be a bounce back after a less than stellar quarter.

“It has people reassessing their current portfolio,” Martenson said. “We still get feedback that middle-market buyouts are still where people want to go.”

Around 78 percent of respondents said they would not pull their private equity investments out of certain geographical locations. Ten percent of investors said they would pull capital out of Asia, while 3 percent said they would pull out of Asia and Europe.

“There’s a general feeling that private equity could be a well-positioned, steady-hand investor during the recent coronavirus-induced volatility,” Martenson said in the report.