LPs start to bend rules on virtual due diligence – report

More than half of respondents to a survey by Eaton Partners said they believe the worst impact of the covid-19 crisis is behind us.

Private equity investors are starting to bend investment policies and are becoming comfortable about investing without having physical meetings, a survey from Eaton Partners has found.

Two-thirds of LPs said they can or will make an investment to a new fund manager without a face-face meeting, according to the placement and advisory firm’s latest LP Pulse Survey.

“When coronavirus first hit and physical meetings became impossible, people thought it was going to be short-lived,” Jeff Eaton, a partner at the firm, said on a call to present the findings on 24 September. “They are now realising physical meetings may be limited for a while, while they still need to invest, make commitments and back new strategies.”

Some LPs are embracing a dual model. Ellinor Schrewelius, an investment director for fund investment at Swedish pension fund AP6, expects that, when the pandemic is over, the industry will see a hybrid solution of virtual and physical meetings for both due diligence and annual general meetings.

“We have not yet done a commitment to a new GP these previous months, mainly re-ups,” Schrewelius told Private Equity International. “But if the possibility to meet in person doesn’t come back, we would also adapt to that environment and we would commit to someone we haven’t met.

“We have spent a lot of time in getting to know teams and people before covid-19 and that has paid off. It’s not optimal to commit [to] someone we haven’t met. But if this doesn’t go away, we would.”

Just under half of the LPs in the survey (48 percent) said there was a lot more uncertainty ahead for the industry, and that the biggest implications of covid-19 would be played out over the long term. Peter Martenson, a partner at Eaton, added that LPs are also thinking about what a higher default rate for troubled companies might mean for their portfolios, and where investment opportunities will continue to shift over time.