After the storm: Private equity post COVID-19

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In the 3rd quarter of 2020, IHS Markit teamed up with Mergermarket to learn about the challenges private equity firms will face going into 2021 due to the effects of COVID-19. We interviewed 30 private equity executives and measured sentiment with a mix of quantitative and qualitative questions about their plans.

Our findings suggest an overall shift toward managing risk while diversifying portfolios - in other words, remaining cautious and simultaneously expanding. Based on these results, we assess a multilateral need for fresh strategies and technology.

  • 37% of respondents told us that they'd focus on managing downside risk over the next year. There are various interpretations as to what this will look like: on the one hand, companies must support their portfolio companies through the pandemic; on the other hand, ongoing risks like ESG will become a priority for these firms.
  • 23% of our respondents, meanwhile, expressed that their strategies would not change.
  • 20% said they'd focus on bolt-on acquisitions to fit with their current portfolio companies.

These breakdowns represent practicality, but they also highlight an unwavering risk appetite that has not succumbed to the externalities of COVID-19.

Diversification is a growing trend.

  • 37% of respondents indicated that they plan to diversify their asset classes over the next year, with 20% of those individuals expressing complete certainty in their intent to do so.
  • In addition, we found that 65% of firms looking to diversify viewed distressed debt as their top segment choice. Underpinning this finding is a growing demand among investors for distressed opportunities; fund managers are answering the call.

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