Private equity firms brace for Q1 slump in portfolio valuations as coronavirus fallout begins to show

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Private equity firms are bracing themselves for their portfolio valuations to slump almost 25 per cent in Q1 as the full effects of the coronavirus pandemic on investments begin to emerge.

About 80% of PE sponsors are expecting Q1 portfolio values to drop by up to a quarter according to a survey from PE fund administrator Gen II Fund Services of 150 of its clients.

The survey shows there is still a high degree of uncertainty regarding the long-term effects of COVID-19 on investments, making traditional methodologies for valuing portfolio investments are less reliable.

For Q1 sponsors are considering a combination of approaches, including public company comparables, third party valuation services, and adjustments to previously applied valuation methodology, it said.

The survey revealed that close to 70% of respondents will be holding investments made within the last 12 months at cost.

Respondents expect to provide additional capital to up to 25% of their portfolio investments, while about 70% believe the effects of Covid-19 will not impact their fund economics.

Four out of five respondents said they would primarily be relying on public market comparables in conjunction with other metrics in their valuations, it added.

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