The impact of COVID-19 on private equity markets

Private Equity lawyer Jamie Becker spoke at the 25^th Annual Global Investment Conference hosted by the Canadian Investment Review.

The Canadian Investment Review has since published a story unpacking some of the themes discussed throughout the day, including comments made by Jamie on his panel, “A legal point of view: Coronavirus and private funds”.

Jamie said that fundraising in the private equity market has held up despite turbulence in the economy caused by the pandemic.

Jamie reflected on the widespread apprehension that was felt in March, but pointed out that these fears did not come to fruition, and that the first half of 2020 turned out to be stronger than that of 2019.

“There was concern at the beginning of the pandemic that [general partners] would turn inward and focus on their own portfolio and [limited partners] would also stop their fund investment activities. Travel restrictions meant that GPs couldn’t go and market to LPs and LPs couldn’t go do onsite due diligence or meet the investment team,” he said.

“Luckily, that hasn’t actually played out and the first half of 2020 actually raised more capital than the first half of 2019, albeit in fewer funds.”

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Jamie also noted that due to the temporary nature of the pandemic, investors have refrained from adjusting their private equity allocations. He added that lessons learned from the previous economic crisis are affecting their behavior too.

“In the [global] financial crisis, funds that were launched tended to outperform funds that were launched before or after. Managers were investing at the bottom of the market, so there’s a lot of opportunities, and those funds performed very well. We’ve heard from our institutional investor clients that they don’t want to make that same mistake again and pause their fund commitments like they did in the [global] financial crisis and miss out on this great vintage of funds,” he said.

Additionally, Jamie highlighted the strength of the secondary market, noting that “it’s actually stronger than the rest of the fundraising market,” and “we expect that the secondary market will continue on its upward trajectory”.

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