Author : Naveen Prasad, Founder & MD at Group Agilis July 10, 2020
The global capital raised through Private Equity (PE) was nearly $600 billion in 2019 and $130 billion in Q1-2020. Global PE assets under management amounted to $4.1tn with an estimated of 3500+ funds are in place in the market as on January 2020. The trend of average annual return of PE is above 15% in 10 years which is relatively higher than other investments (ex: S&P500). PE quarterly gain at Europe, US and rest of world is around 8%, 4% and 3% respectively. However, the outlook and momentum of fundraising for rest of the year needs introspection considering the effects of Coronavirus (COVID-19) pandemic and economic crisis.
When countries try to emerge from the crisis, businesses will strive to stay afloat by quickly raising capital via initial public offerings (IPOs), private equity and venture capital. Especially, the middle-market companies who look forward to invest in new technology, to add new people for their rapid expansion or to re-finance their existing loans will need assistance in terms of capital raising for their future growth post-pandemic. On the other hand, investors though observing a decline in reduced deal flow will continue to seek out opportunities to invest despite the current crisis.
At the end of year 2019, the dry powder or the unutilized capital has risen to $1.5 trillion. The private equity industry remains sought after by investors and most likely to have positive investor sentiment to see through capital flowing in year 2020.
Whilst the pandemic continues to haunt global economies and financial markets, the economic crisis increases the risk of liquidity and PE firms are influenced to reduce capital from investors (most likely limited partners or LPs). The trend is also indicative of the fact that investors are oriented towards back selecting funds that shows an increase in average ticket size of a fund.
The prognosis looks positive for private equity that is shoring up existing companies and initiate new one at a bargained pricing levels. The funding managers will be examining the assets in sectors which are less likely to be affected by the pandemic. Disruptive technologies such as artificial intelligence will help fund managers to seek new opportunities for investment. Investing on new technologies, use of hybrid cloud service, adoption of SaaS will provide cutting edge competitive advantage and technology risk management has the potential to take center stage in 2020.