Capital calls are expected to fall in the short term but should pick up rapidly throughout the year as cash-rich PE funds begin bargain hunting, according to new research by eFront.
eFront, a financial software and solutions provider focused on alternative investments, has published a retrospective analysis of PE performance, capital calls and distributions over the past 20 years, in order to assess the pandemic’s impact on the asset class.
“Each crisis is unique in its own right. However, what is clear is that the NAVs of funds will to some extent mirror the gyration of stock prices, but not the full swings. Given this fact, funds will snap up attractive deals even during the worst periods of a crisis, and probably generate attractive returns from these deals,” eFront commented on the research.
Some of the findings of the study includes, assuming that the worst of the economic crisis caused by the Covid-19 pandemic will be in 2020 -the vintage years which will suffer the most are likely to be 2016, 2017 and 2018- while funds closed in 2020 in particular could become net beneficiaries.
However, this is far from a rule set in stone. The depth and the extent of the recession will dictate performance to a certain extent, and the quality of fund managers and actions taken by them in the coming years will be of huge importance.
Meanwhile, funds of vintage years 2019-21, should deliver strong returns, benefiting from improved market dynamics and ample investment opportunities.
It is also perhaps no surprise that the top two performing years in the sample are 2008 and 2009; these funds were invested during the depths of the crisis, allowing GPs to take advantage of low prices and the sustained economic recovery thereafter.