Lock-down opens up the doors to the “Survival of the fittest amongst GP’s”

Lock-down opens up the doors to the “Survival of the fittest amongst GP’s”

 

How does a Fund Placement Agency perceive the “lock-down period” so far?

Since the first day of the Covid-19 lock down, we have been working harder than ever to ensure the running of a successful fundraising campaign and forming relationships with new investors.

We have continued to receive growing requests for screening especially from the well-established FoF’s/ sovereign funds whereas GP’s have been reluctant to start fundraising due to fear and panic in the market and have therefore put their fundraising on pause for the time being. Sadly enough, they will miss out on opportunities as LP’s are still screening and as a result, there are much less competing GP’s on stage.We believe that those GPs will get selective attention in the fundraising market from the LP’s. So our advice: the fittest will survive, stay onboard and you’ll make it! 

The most popular PE assets: distressed debt funds, credit funds for SME’s, Real Estate and Real Assets and VC will be suffering a bit more to close the funds (especially with the high risks associated with early-stage, micro VC’s funds (sub 100 M EUR funds). 

Digital tools, like Zoom and Google Hangout, are largely popular tools to connect between GP’s – LP’s as a first meeting. 

Some of the London based LP’s are very responsive, more than usual due to the fact that they are not commuting between suburban London and the City, as well as constant travel back and forth for meetings.

It is ultimately a very different atmosphere when speaking with your fund investors while you can see them in casual clothes, you see their self chosen design lamp or you hear a child running or dog barking in the background. In a split second, one will have much more personalized information about your Private Equity, suit and tie wearing colleagues.

I must say this perspective also brings a very much needed personalization so that a machine-like mass fund capital allocators now all of a sudden become vulnerable and human. That perspective makes business relations more long-lasting. Now out of necessity, we can color up our business relations and build-up, maybe for the first time a trusted business society due to corona.

 

Now back to the rationalities and facts. What will you be able to perceive in the fundraising market for PE’s and VC’s? Read our summary from PitchBook.

Key takeaways:

  • Single-family offices might be now silent but mega LP’s are still actively sourcing. The more institutional probably the most economic crunch resilient. LPs as a group are better positioned to combat the denominator effect today because many entered 2020 under-allocated or at their targets to private markets. Additionally, many institutional investors have updated their investment policy statements to allow for more flexibility in volatile markets, like the one we’re currently experiencing. 
  • Due Diligence on sites (at GP’s offices) will be delayed due to travel limitations, surely till June 2020The inability to perform in-person due diligence will be a major impediment to fundraising. 
  • VC’s will focus on resilience/reserve not much on new sourcing. In VC, more recent vintages have been deploying capital more quickly than in the past, often relying on new fundraisers to support follow-on financings. We anticipate that many VC funds will shift their capital deployment, concentrating more on supporting existing portfolio companies and adjusting their reserve capital accordingly.
  • Private debt is a favorite asset class both for fundraisers as for allocators. Coming into 2020, private debt fundraising had experienced its best three-year period in history, having raised $388.9 billion globally since 2017. Dry powder had ballooned too, reaching $276.5 billion as of Q2 2019, all signaling that private debt funds have plenty of capital to deploy in these trying times.
  • LP allocation can turn negative in PE and VC. LPs allocating to PE and VC can expect net cash flows to turn negative, a break from the norm of recent years.
  • Secondaries market need to restructure as well. We have heard of several secondaries deals being reconsidered in recent weeks, as buyers underwrite deals to the new realities of the market. It will take months—possibly even until the end of the year—for transaction volume to rebound given the need for recalibration from parties on both sides of the table.
  • All PE fundraising events are till Oct 2020 canceled
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