LPs fears over a second wave of the Covid-19 pandemic is the biggest threat to alternative asset fund managers looking to raise new capital, new research shows.
More than a third of alternative investment professionals surveyed by professional services firm EisnerAmper said a second wave of the coronavirus, which could prompt a second economic shutdown, was the issue that could most impact LP liquidity.
Poor public market performance (23%), changes to tax regulations (21%), and the outcome of the presidential election (20%) were also named as major factors that could impact LP liquidity, while respondents also cited compliance regulations as a major obstacle caused by the pandemic.
LPs are continuing to allocate to managers they have relationships with, however, and 62% of respondents reported that they do not anticipate that LPs will make significant shifts in their investment allocations over the next 12 months.
The survey of more than 250 alternative investment professionals found that a strong majority expect a return to pre-pandemic levels of deal activity by the close of 2021.
Two in five respondents predicted an even swifter recovery, with a return to pre-pandemic deal activity by the end of Q2 next year.
When asked to identify the industries that present the best chance for growth in Q4 2020, respondents pegged technology and health care/life sciences as the sectors with the greatest opportunities.
This largely mirrored results from EisnerAmper’s 2019 survey, when technology, cannabis, and health care/life sciences were named as the strongest growth sectors.
Many dealmakers hit the pause button in March 2020 when Covid-19 caused both a global economic crisis and a dramatic shifted in the ways deals get done.
Despite the investment industry continuing to largely operate in a work-from-home setting, 80% of private equity executives agree that they have been able to satisfactorily conduct deal due diligence during the pandemic.
Executives even see potential for some elements of the virtual process to last beyond Covid-19, the survey added, with 73% of respondents expecting a decrease in in-person site visits and management meetings post-pandemic.
Peter Cogan, managing partner of EisnerAmper’s financial services industry, said, “The alternative investment industry has remained resilient during a year that no one could have predicted and has adapted quickly and efficiently to the challenges that the global pandemic has posed.
“The survey findings unveil a fairly optimistic outlook, even as uncertainty lingers amid the upcoming presidential election and rising COVID-19 cases in some cities.”
In a congested deal market, 32% of PE and VC professionals identified their top challenge as finding diversified deals to add to their portfolios.
Fluctuations in US trade policy and cybersecurity concerns were also cited as a top challenge for businesses in this sector, by 21% and 19% of respondents respectively.
Though hiring at many PE/VC firms halted in the early days of the pandemic, 56% of respondents stated that they do plan to hire over the next 12 months, with 76% of those adding to their operations teams and 52% adding to their investment teams.
Cogan added, “Planning to resume hiring in 2021 is a strong indication that the private equity industry is recovering from the disruption that the pandemic caused in the first half of the year.
“Furthermore, as private equity firms face the challenge of finding diversified deals, recruiting fresh talent is vital to help realize new opportunities.”
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