From my conversations with the market and our ongoing work at PER, we’ve seen a decline in firms putting processes on hold. It seems if they were going to pause hiring, they did so in the first weeks of the crisis. There’s still a lot of interview activity going on, as everyone becomes accustomed to video conferencing replacing face-to-face meetings, and we are delighted with the number of new mandates won in recent weeks, at all levels.
According to our Taking the Temperature report, published this week, and what I’ve heard anecdotally, very few GPs or LPs are putting their own deal teams on furlough schemes or introducing reduced hours. It seems there’s plenty of work to be done on the ground in terms of firefighting and preparing for fresh deal activity.
Before the coronavirus crisis, we were very aware of the demand for talent in private equity. As we noted at the time, securing fundraising and returns in the ever-more competitive private equity market is an increasingly time-intensive process and investment teams have been growing steadily to cope with workloads. While some short-term caution is being exercised in terms of hiring right now, the outlook for when the current crisis has passed remains broadly as before; and private equity has always been an industry that has to plan for the long term.
Our Taking the Temperature report supports this long-term view in terms of more general market confidence. In the report there’s a compelling difference between projections for fund performance in the next three months and in the next six to twelve months. Of course, as one of our contributors commented, projections will change as we get a clearer idea of the longevity of the lockdown period.
In Europe, many eyes will be on Denmark as it starts to lift the lock down, on Sweden, which has played by very different rules up to now, and on Spain and Italy as they take their first steps out of quarantine. Elsewhere, there’s great interest in the US impact given the scale of the health and economic crisis and the mixed messages from federal and local governments; we cannot overestimate the way that the US leads global investment markets, so watching how they recover will be vital.
Some of the most immediate developments we’ve been seeing in the market include some deals now closing at significant discounts due to market conditions, difficulties in acquiring debt financing and pressure on liquidity in portfolios. However, medium-term planning seems to be continuing; we’ve seen a rise in willingness to restart investing, with significant groundwork being done on origination and some opportunistic behaviour.
It seems private equity is doing all it can right now to prepare for a strong return to business on the other side of this crisis. I continue to stand by my belief that the medium and long-term outlook is strong for private equity hiring: investors want more capital deployed in private equity; the market is more competitive than ever and firms simply need more bodies to do the work. In the past year we’ve seen the supply of talent struggling to match the increase in demand, and today we see firms reluctant to stop hiring completely and risk losing top talent to rivals in anticipation of the post-crisis comeback.