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Strong partnerships as PE industry adapts

By A Paris – In what has been a tumultuous year for all sectors, private equity has had to adapt in the face of the investment and operational challenges thrown up by the Covid-19 pandemic. Amid the struggles, fund raising efforts remained strong and general partners (GPs), together with their service providers, stepped up and adjusted to this new environment.

Data from Preqin shows a record number of funds on the road, albeit will a smaller total capital target than in the past couple of years. “Managers may be purposefully staying smaller and nimbler in order to more quickly take advantage of the market opportunities that the pandemic has presented,” the data provider notes.

However, the industry is also facing a decline in actual fundraising, with only 237 funds closed in the quarter, down 18.3 per cent from Q2 2020. The data indicates that despite the smaller total capital target a number of funds have, investors are seeking security in larger managers with larger funds, with the average fund size up 26 per cent compared to the prior quarter. This could be partly driven by the difficulties investors face in having to carry out operational due diligence on virtual platforms.

“The environment has caused a fair amount of introspection on how firms operate. It also had an impact on how investors think about diligence and operational capabilities and infrastructure of the firms they’re investing in,” comments Joe Patellaro, Managing Director, SS&C Global Head of Private Equity Services.

This year has also seen an acceleration in the adoption of technology. “GPs have been creative and bond and have transformed, adapted and evolved to become and agile resilient industry,” notes Steve Roberts, Private Equity Leader at PwC Germany in the firm’s private equity trend report for 2020. “The way forward is continued diversification with a lot of focus on technology and using tools such as AI to source more and better deals but also to expedite holding periods, increase the value of portfolios and create industry leaders and disruptors,” he adds.

Jill Calton, SVP Director of Alternative Investments at UMB Fund Services echoes this sentiment: “Private equity’s ability to adapt and evolve, embrace challenges and create opportunities will be front and centre in the upcoming year. The sector is well positioned to take advantage of the uncertainty in the marketplace. 

“Technology is going to be key. With the likelihood of remote operations continuing the ability to adapt and leverage technology to accomplish tasks that were traditionally handled in person is very clear. The greater the reliance on technology also leads to greater risk and susceptibility to cyber-attacks.”

Though bringing with it a variety of challenges, the Covid-19 crisis has pushed the private equity sector beyond its comfort zone. Des Johnson, CEO of Centaur USA highlights: “GPs have traditionally relied heavily on face to face interactions in an industry that has always been quite conservative. With the technology developments and acceptance that has come with the lockdown, GPs are quickly realising that technology is a support to them as they adapt and modernise. New technology tools and security protocols are bringing about greater productivity and cost efficiencies, and this has led to an upswing in the outsourcing of administration operations.” 

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