According to the latest analysis from CEPRES, 2021 could be the best year for private markets ever because of the fallout from the COVID-19 crisis. The analysis looked back at the impact on private equity and credit transactions before, during and after the most recent Global Financial Crisis (GFC), to interpolate possible outcomes of the current COVID-19 pandemic.
By looking at cash flows of 7,800 funds, 80,500 deals and underlying operating metrics of $28 trillion worth of PE-backed companies, the CEPRES Platform is able to uncover patterns of returns, risks and deal pricing across different geographies and segments spanning the GFC period. From this analysis, some key findings were:
Pre-GFC Industrials and Consumer dominated PE Deals by investment volume, but lost traction post-GFC compared to Technology and Healthcare
North America was better able to weather the GFC storm and recovered faster
Fund vintages 3 years prior and deals invested 2 years prior to the GFC were negatively impacted and investors should expect similarly
Some investors returned to the market too early during 2008 and suffered from the second contraction
Investors able to act in mid-2009 were able to take advantage of bottom pricing and make outsize returns
Source: CEPRES Platform
Copyright © 2020 CEPRES GmbH
The full report is available to CEPRES users.
Commentary:
“The Coronavirus is a black swan event that is exacerbating already existing systematic risks in private market portfolios. It is by no means the same as the GFC and we see different idiosyncratic outcomes, but some similar trends. Private equity is perfectly placed to take advantage of a downturn. For those investors able to act on the dry powder in the market, we expect a top buying opportunity for well-priced companies next year. Following a largely benign environment over the last decade this event will cause a shift in allocation strategies as investors seek higher growth sectors to invest in. Using the CEPRES Platform we observe an over-diversification has led some portfolios to be worse affected than necessary. Those who focused on higher growth, innovative segments will be less impacted and investors able to act and deploy capital with the right strategy could quickly recover any losses from the current fallout. As Warren Buffet said “be fearful when others are greedy and be greedy when others are fearful”! “
Christopher Godfrey, President CEPRES Corp.
