Private Equity’s Outlook in Post-COVID Era

The economic challenges created by the COVID-19 pandemic presented new opportunities to the private equity (PE) industry and its outlook is rosy, according to various industry surveys.

At the end of 2020, the Deloitte Center for Financial Services predicted “formidable growth” in PE over the next few years, with assets under management (AUM) expected to reach $5.8 trillion by 2025, up from $4.5 trillion at year end 2019.

According to the report:

As economic activity returns to normal growth levels in the post–COVID-19 world, PE will likely play a key role in the recovery. Unlike other investment vehicles such as mutual funds, ETFs, and hedge funds, PE firms can wait for the right moment to deploy cash committed by limited partners. They also have more control over the duration of investments, allowing them to time exits to benefit from better valuations.

Additionally, because PE firms are actively involved in the management and oversight of portfolio companies, they can effectively steer these companies through a crisis. In times of crisis, PE firms can also buy companies at attractive valuations, improve their operational performance, and realize substantial profits when they exit.

Digital Shift

According to Deloitte’s survey, one of the most common ways PE firms stepped up to help guide portfolio companies through the pandemic was in sharing best practices to help companies build digital capabilities. A survey conducted by Mergermarket in the third quarter of 2020 produced similar findings.

For example, it found that as a result of the pandemic PE firms leaned more heavily on advanced technologies such as “artificial intelligence and machine learning to drive value in areas such as due diligence, portfolio analysis and deal pipeline monitoring.” More than three-quarters (77%) of the 30 senior PE executives surveyed are optimistic about their organization’s ability to leverage technological advances and digitalization for growth going forward.

“Technology provides an edge when it comes to [making] important decisions,” the CFO of a Germany-based PE firm told the researchers. “Predictive analysis and automation have been the most functional and advantageous technologies.”

Technology and Healthcare in Focus

The bullish sentiment for PE in a post-COVID world was also seen in S&P Global Market Intelligence’s latest annual survey on the industry.

According to its “2021 Global Private Equity Outlook” report:

Against the backdrop of the worldwide rollout of vaccination programmes, the new U.S. presidency, and Brexit finally coming to a close, PE investors are demonstrating an overwhelmingly bullish outlook for the industry … The pandemic has opened an array of opportunities in sectors that have been positively impacted by COVID-19, such as Healthcare Technology, Life Sciences, and Information Technology.

Specifically, the survey found, in terms of industry focus, the two most attractive sectors are Information Technology (51%) and Healthcare (43%) – two sectors positively impacted by the pandemic. PE investment in both industries grew by 18% and 23%, respectively, over the past year, according to S&P Global Market Intelligence data.

For more insights and advice on PE investing, read our blogs on “The Life Cycle of Funds and Different Stages of Investment Opportunities” and “Key Questions to Ask Before Investing in Private Equity.”

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