Webinar Round-up: A view from the private markets – Part II

Webinar Round-up: A view from the private markets – Part II

29th May 2020

There is no doubt that the worldwide lockdowns seen over the last few months have caused a wave of economic uncertainty that is impacting the way individuals invest. At Delio, we’re keeping in close contact with our clients and partners to support financial firms within private markets with their responses to Covid-19.

Despite some financial firms currently limiting their investments to avoid risk, there is also a growing number of family offices who continue to invest and are employing creative approaches to their deal structures. The same trend applies to the angel network space, where angels are generally still heavily engaged with transactions. Earlier this month, we spoke to three experts of different financial backgrounds about the current state of private markets and how firms are adapting.

Here are some of the insights we received from Jeroen Afink from ABN AMRO Private Equity Solutions, J.P. Harrop from IQ-EQ and Jason Proctor from Truffle Invest.

Listen to full webinar

Demand for private equity is staying healthy.

Over the last decade, private markets have become ingrained in many institutional portfolios – often representing as much as 20% of the total portfolio. Despite facing a ‘Corona dip’, the demand for private equity continues to grow. This trend has appealed to a range of clients and has led to new initiatives from financial firms like ABN AMRO Private Equity Solutions. The specialised private bank is launching a new Private Equity Advice service to meet this increasing demand, so that a range of clients can commit investments to private equity, instantly diversifying their portfolio.

Yet, many investors are new to this asset class, which is why educating both advisors and investors remains a top priority. Before committing, financial institutions need to ensure that investors fully grasp the unique characteristics of private markets. This should also include more technical conversations, such as “How do things really work from a capital call or a distribution perspective? ” Now is the time to outline a clear and highly-developed plan for investors to follow.

Despite the slight dip, things are looking positive. Institutional investors, including those who are first time PE investors, are remaining calm. By advising investors of the broader benefits of private equity, as well as outlining how investors can make the most from the current investment climate, most first-time PE investors are holding onto their investments to see how things develop.

Where’s the market now?

Although private market transactions haven’t ground to a halt, there are fewer active investors deploying capital.  Understandably, those who are still investing are taking a more cautious approach. As a result, the transaction negotiation process has become more sophisticated, meaning it not only takes more time to find matching investor profiles but also to finalise transactions.

The same rings true in terms of closed funds. Although Limited Partners (LPs) are standing by the commitments they previously made and continue to pay drawdowns, other elements are taking longer than usual, especially in terms of auditing and reporting on underlying funds. Auditors, for example, want to spend more time assessing investment evaluations or adding disclosures to investor accounts, meaning the traditional process is taking up more time.

Similarly, fundraising is experiencing the first effects of a downturn, as first-time funds are seeing more push-back. First-time funds that had already been successfully presented to an investment committee are moving on as usual. However, things are looking a little different for any fund that hasn’t been seen by a committee yet. While meetings through Zoom have helped GPs and clients to stay in touch and discuss portfolios, it’s become clear that many people don’t want to engage new funds from a distance. They want to meet them in person, meaning the majority of first-closes are pushed back to the end of Q3 or, in some cases, even Q4.

Communication is getting more frequent.

At the start of global lockdowns, words like ‘unprecedented’ and ‘uncertainty’ consistently echoed through the media. As many businesses have had to adapt, communication with clients and stakeholders has played a fundamental role. Quarterly meetings are now moved to a monthly basis and many advisors have switched to monthly reports. Although the actual numbers in such statements may not fluctuate significantly, regular updates are used to check in on clients, evaluate portfolios and, in general, ensure everyone is keeping well.

Now that financial firms are looking to strengthen the communication line between investors and advisors, they’re turning to tech. The current situation is challenging to maintain as businesses cannot operate as usual. Those who heavily rely on sending documents and forms to sign, and primarily communicate via email are looking for tech solutions to make the fundraising process and communication lines more efficient.

You can listen to A view from the private markets webinar on-demand here. If you would like to find out more about our speakers or get in contact with them, please get in touch.