Institutional Investors Hold the Fort

Placement agent Eaton Partners, a subsidiary of Stifel Financial, has completed a survey that reveals an overwhelming majority of institutional investors (64%) are making no changes at this time to their private market allocations despite dislocations caused by the coronavirus crisis. In fact, some institutions (15%) are increasing allocations.

According to Eaton Partners LP Pulse Survey, only a third (33%) of limited partners say their greatest focus is on immediate, shorter-term investments and most (84%) aren’t shying away from any specific geographic areas, regardless of COVID-19 penetration.

“While we do see LPs committing to GPs already in the process of underwriting, we also expect there will likely be a decrease in overall fundraising activity over the coming months,” said Jeff Eaton, a partner at Eaton. “Private capital fundraising activity typically has lagged the public markets by two quarters as denominator effect impacts and updated fund valuations take hold.”

Eaton’s online survey questioned 107 limited partners, over the past several days, about how COVID-19 could influence their investment strategies in the private capital market. Important findings of the survey include:

  • 43% of investors believe that COVID-19 will disrupt business activity for at least 3 to 6 months, 22% believe the disruption will last 6 to 9 months, and only 10% believe disruption will last more than one year.
  • More than two-thirds of investors (67%) are anticipating a U-shaped recession/recovery scenario.
  • There’s an increase in confidence in the government’s ability to appropriately manage the economic impact of COVID-19, with 80% of respondents now saying they are at least somewhat confident, compared to 61% from a mid-March survey.
  • Private equity continues to be the most appealing alternative asset class right now (39%), however, this dropped from 52% from the mid-March survey. Private credit trailed at 30% and real assets at 19%.
  • Nearly 6 in 10 (59%) of investors are concerned that many private equity-backed companies may not be eligible for federal COVID assistance loans.
  • Infrastructure leads the pack (33%) as the alternative asset class that respondents believe offers the strongest uncorrelated returns to the public equity markets.
  • Due to work-from-home and videoconference capabilities, an overwhelming majority (73%) say the coronavirus pandemic has not had a significant impact on their ability to conduct business.

“As our survey indicates, there will also be pockets of relative strength,” said Peter Martenson, a partner at Eaton. “Investors are determining what’s on their priority list for new, interesting ideas and moving the best ones to the forefront. We expect successful fundraising will require GPs to be more focused, articulate, and transparent than ever.”

Rowayton, Connecticut-headquartered Eaton Partners has helped investment managers raise more than $100 billion across more than 125 alternative investment funds and offerings since its founding in 1983. The firm is a subsidiary of Stifel Financial (NYSE: SF) and has offices throughout North America, Europe and Asia.

Click HERE for a PDF of the full survey results.

Private Equity Professional | April 14, 2020

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