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28 May, 2020

What’s happening?

 

  • US equities continue to rally
  • Firm signals European and US economies are reopening

 

Focus on private equity

 

  • Illiquidity premium, resilience and opportunities in downturns
  • Access to unique, unlisted companies
  • Our eight-step plan to implementation

 

What’s next?
 

  • Brexit deal extension deadline looms
  • Deflation immediately… then inflation?

 

What’s happening?
 

Despite persistent poor economic data, equity markets are continuing to rise. US equities have rallied to this point in 20191, partly due to unprecedented support by central banks and governments, but also to renewed confidence as economies began to open back up in May2 – however, what, when and how we will return to normal remains unclear.
 

  • In the UK, increased car journeys point to a recovery2
  • Driving and transit figures increased across France and Germany2
  • US hotel occupancies rose to 30% from lows of 20% in April2
  • US air terminal passenger numbers have increased, but remain at very low level of 10%2


Focus on private equity
 

Private assets can diversify portfolios and dampen volatility, helping investors to meet their ultimate objectives through better risk-adjusted returns. Throughout the crisis, we have also seen opportunities created by market dislocations – particularly around private equity – that can help investors attain their goals more efficiently.
 

Private equity has three key qualities for investors to consider:

 

  • Illiquidity premium

o   Holding assets over the long term allows a hands-on approach to management, encouraging better company performance

o   While this approach can incur higher fees, they are often offset by higher returns3

 

  • Resilience and opportunities

o   Private equity often outperforms public markets during downturns and crises4

o   Managers holding “dry powder” can deploy capital quickly when identifying opportunities

o   Funds and vintages launched during crises often do better than others5

 

  • Access to unique unlisted companies

o   The number of publicly listed companies has dropped significantly, meaning many opportunities lie elsewhere6

o   Early stage companies offer good value growth opportunities

 

The wider private market opportunity
 

We believe now may be a good time to allocate or recommit to private markets, as we see attractive opportunities emerging that will continue to generate strong return potential over the near to mid-term.

 

Private debt, real estate and infrastructure offer significant opportunities for long-term investors – find out more in our recent report.

 

Our eight-step plan to implementation
 

Accessing private markets can be a complex challenge as they span a huge range of assets, sectors and regions. The divergence between manager performance is often significant, while operational and investment due diligence can be a challenge for some investors. Costs can also be higher than those associated with public markets.

 

But by implementing a strong plan, investors can ensure they have a diversified, well-blended portfolio, invested with high-quality managers, that meets their liquidity needs, while conforming to tax, legal, reporting and due diligence requirements.  

 

Contact us to explore how our eight-step plan can help you access private market opportunities efficiently and cost-effectively.  

 

What’s next?
 

The potential for a no-deal Brexit looms, as the deadline to request an immediate extension falls due at the end of June, with no significant progress on a deal yet made.

 

While we believe the impact of Covid-19 – and the unprecedented monetary support – is likely to be deflationary in the short term, we may see some inflation over the medium to long-term. However, it is not clear where this inflation will appear and how strong it will be.

 

[1] Bloomberg 26 May

[2] Pantheon 26 May

[3] ALL PRIVATE MARKET & COMPARATOR DATA: Burgiss Private IQ, Cambridge Associates, MSCI World

[4] ALL PRIVATE MARKET & COMPARATOR DATA: Burgiss Private IQ, Cambridge Associates, MSCI World

[5] ALL PRIVATE MARKET & COMPARATOR DATA: Burgiss Private IQ, Cambridge Associates, MSCI World

[6] https://www.statista.com/statistics/324547/uk-number-of-companies-lse/


 

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