LPs and GPs are going to need ways to confront and resolve the particular challenges imposed on them by the coronavirus-induced economic crisis:
- As has been widely reported, many portfolio companies are severely impacted and in desperate need of cash. Private equity-backed companies do have access to the parent fund’s dry powder. But where investment periods have expired and reserves at fund and asset level are exhausted, GPs are on the lookout for additional sources of capital.
- The slowdown in M&A activity delays both new investments and exits. That’s a pressing concern for funds still in their investment period or nearing the end of their term. Some market players believe that it may take 12-18 months for M&A to pick up.
- Many LPs face significant liquidity demands, with funds accelerating capital calls (in order to support portfolio companies and repay subscription lines, the use of which is much more prevalent than during the GFC), paired with a reduction in distributions (as GPs conserve cash for emergencies).
- Institutional investors are assessing the impact of the crisis on their portfolios to see if reallocations are necessary, although the full impact of this is not expected to be established until the second half of the year.
MJ Hudson works with clients in the fields of law, international administration, fund management, investment advisory, and IR and marketing, across both alternative and traditional asset classes.Gresham House Strategic PLC (LON:GHS) has a 1.3% ownership of MJ Hudson as of June 2018.