Three lessons from an unprecedented H1

What did we learn about private equity amid the unfolding of a pandemic?

In six months in which the world’s largest economies were all but closed down, how did private equity react? The halfway point of the year is a good time to take stock of the main themes from the crisis so far and what they teach us about PE:

It is operationally resilient

Despite some initial misgivings, the industry has proved it can continue with dealmaking, portfolio management and even launching and closing funds from the safety of executives’ homes. “GPs and LPs have embraced technology – it’s almost jolted us into 2050,” says Alexander Rayden, a senior managing director in Evercore’s private funds group, who advised on the UK private equity firm Tenzing’s sophomore fundraise, touted as the first fund to launch and close entirely virtually.

Some have even taken novel approaches to recruitment via virtual internships, and to LP communication, such as EQT‘s TV show-style annual investor meeting. Investors we surveyed in May are adapting: a quarter said they would attend AGMs via videoconference as opposed to in person this year, with 21 percent conducting fund due diligence virtually.

It moves fast in light of opportunities

The crisis created “one of the great environments possibly to buy distressed debt that may have ever been in existence”, Brookfield Asset Management’s Bruce Flatt said in May. Firms wasted no time in raising money for pandemic-driven dislocation opportunities, including KKR and Apollo Global Management which amassed $4 billion and $1.75 billion respectively in just eight weeks. While most deal activity is on hold, deals resilient to or benefiting from covid-19, such as software and healthcare, are completing, according to investment bank Baird. Some PE-backed companies shifted their core focus to take advantage of the situation.

The image problem remains

Mud was being hurled at the PE industry before the pandemic arrived, with politicians in the US calling for an end to the industry’s “abusive practices”. With the arrival of the pandemic this animosity took on new meaning. PE portfolio companies found themselves barred from state rescue loans, portfolio company decisions were scrutinised, and the industry failed to come together and define its mission amid these uncertain times (except in France). Critics asked why its mountain of dry powder could not be used as a bail-out fund for pummelled portfolio companies.

Look out this month for our take on three themes to watch in H2.

We’ve extended the deadline for PEI’s annual Operational Excellence Awards to next Friday, 10 July. Highlight your value creation credentials by sending us your entries: