Navigating the uncharted: How can private equity investors respond to the COVID-19 crisis?
03/31/2020
Author:
Lee Gardella, Head of Investment Risk and Monitoring, Schroder Adveq Investment
In addition to the humanitarian crisis, efforts to contain and mitigate the COVID-19 outbreak have resulted in a historic stock market correction and seems to be leading the world into a global recession1. Implications for financial markets are wide ranging, and the variables numerous, so that many investors do not even know which questions to ask, let alone what the answers they need might be.
The first and second order effects and the timeline of the crisis remain highly uncertain. However, our experience with two previous major crises – 2000-03 and 2008/09 – means we believe we can offer some insight on the risk and liquidity management issues institutional private equity investors may encounter in the coming weeks and months and can help them to navigate through this crisis.
We break down the implications for all of the following:
- Existing investments overall and by strategy, region and industry
- Valuations
- Cash flows (contributions, distributions)
- Reserves for follow-on financings
- ESG considerations
- Monitoring and risk management questions to ask
- Private equity allocations
- New investment opportunities
- Possible long-term effects
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