What are the key takeaways from the event?
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Private credit, like many other sectors, has been shaken up by COVID-19, but managers' response to this shock to the system has surprised many.
Manjot Rana, Senior Principal, Special Situation Credit, CPPIB Credit Investments, noted that the management of cashburn has worked surprisingly well, and the people in this sector have proven themselves to be adaptive and flexible under such distress.
Monday morning's panel expects to get back to “normal” in 15-18 months, but the pockets of stress and distress in particular sectors and geographies would not be surprising. In fact, SuperReturn North America virtual attendees were warned:
Brooks' presentation clearly showed a rebound in economic growth. Richard Fitzgerald, Co-Founder & Managing Partner, CapitalSpring, even saw positive signs in the much talked about restaurant sector, particularly in the fast casual and casual dining areas.
But as usual, there is no one-size-fits-for-all solution - or recovery path - for companies. In this tentatively growing global economy, is there place for new deals and new partnerships?
Investors' feedback was clear: yes to the former, not so much for the latter.
The opportunities the past few months have certainly been surprising for investors, but as Jamie Athanasoulas, Managing Director, HarbourVest Partners, and Kenton Freitag, Senior Portfolio Manager, British Columbia Investment Management Corporation, said, they're not on the look-out for new managers.
When new deals are scarce, and investors are not looking for new managers, it is important to strengthen the relationships you already have. Between March-June 2020, asset managers have been internally focussed, busy with underwritings and re-underwritings. For those with sponsored deals at this time, communicating the options and next steps was crucial.
However, new deals are not impossible. Dean D'Angelo, Founding Partner, Stellus Capital, for instance, has been on the look-out for positive, consistent track records in businesses. The expertise of sponsors could also be a huge benefit to your decision-making here.
Data-driven decision-making is still important, especially when it comes to liquidity and cashflow management. However, Jocelyn Lewis, Executive Director, Private Markets, IHS Markit, has seen many customers facing reporting bottlenecks at a time when data is so important. Better data transparency, robust data organisation, and improved information hubs could be the answer to this issue and more (like LPs looking for custom reports).
When technology comes to the rescue, you can tell that software and IT companies are the businesses you need to keep an eye on. Both Kerry Dolan and Dean D'Angelo identified this sector as the one to watch. After all, technology, particularly enterprise solutions, is what allowed many of us to work from home and stay in touch with the outside world over the past few months.
On the other side of the scale, many are avoiding sectors that are customer-facing, although casual dining has seen some rebound. D'Angelo also noted that CAPEX-heavy businesses are not preferred, although that has always been the case, even before 1 March 2020.
Economist and Director of Portfolio Strategy, New York Life Investments, Lauren Goodwin's snapshot of PE today looks like this:
In this transitory environment, Steve Moseley, Head of Alternative Investments, Alaska Permanent Fund Corporation, said that cooperation with other LPs will become more crucial; intel sharing and joint ventures could bring more opportunities.
Matthew Lee, Co-Founder, Progression Fund, reported that institutional LPs are getting more and more involved with emerging managers and pre-seed stage ventures. Although it's a good time to be in tech, Michael Proman, Managing Director, Scrum Ventures, emphasised the importance of being tech-agnostic, and encourages a diversified strategy in general.
Watch our exclusive interview with Lauren Goodwin on the economic outlook for 2020 and beyond.
Indeed, in an interview with himself, David Rubenstein, Co-Founder & Co-Executive Chairman, The Carlyle Group, has made it clear that the impact of the stimulus from earlier this year is going to wear off soon - and there is no guarantee of another one.
Going forward, the upcoming US election is set to dominate conversations. And although we are short on crystal balls, there are certain things we can anticipate the coming months.
Whatever the outcome of the election, Rubenstein is expecting tax reforms, possibly on carried interest, capital gains, and corporate tax. Whatever the outcome of the election, improving the current relationship with China will be key. And whatever the outcome of the election, PE will still be a topic of conversation in policy-making circles.
On this note, Rubenstein asked attendees to be ambassadors of private equity.
"All of you in the industry", Rubenstein said, "you should take pride in the industry."
For the last couple of days, we've been talking about partnerships a lot, but what makes a good partner?
For Alison Nankivell, Vice President, Fund Investments and Global Scaling, Business Development Bank of Canada (BDC), one of the challenges was finding an answer to this question: what value do LPs bring to the table? Also, what do GPs bring to the table?
Over the last couple of days, we already learnt that both sides can offer their own expertise and experience. But the key to actually enter into a partnership might be in listening. Sometimes partnerships are not as lucrative for LPs as going in on their own. That has certainly been the case for Megan Lindhe, Senior Principal, Private Equity Funds, CPP Investments, who has been in situations when GPs were not quite the partnership material, but rather competitors.
When looking at the markets, especially in the low to mid-markets, LPs can be particularly good partners because these businesses might not be as mature yet. For example, Ryan McGovern, Director, OPTrust, has invested in companies that didn't have an established process for M&A. This is where LPs' experience can be immensely valuable, and coincidentally, the area where many of the recent LP transactions took place. To further add value, one might think about leveraging data and technology to drive better investment decisions.
It's truth universally acknowledged that this is a competitive sector, and it's about to get even more competitive. LPs based in Mexico are casting their eyes abroad, and in an afternoon panel, Alejandro Wassiliu, Chief Investment Officer, InverCap Afore, reported a growing appetite for currencies and industries alike.
Meanwhile, we've seen an overwhelming number of GP-led deals over the summer, and Sunaina Sinha, Managing Partner, Cebile Capital, predicts that this will be the case through to the end of 2020.
In private equity, when it comes to ESG and diversity and inclusion, LPs are taking the lead in asking the right questions consistently and now, it seems, systematically. For Megan Lindhe, ESG has been a part of every investment review.
After oil prices have gone negative this year, we hear from the key players in this sector and where they see oil & gas in the portfolio.
"Oil has its place but at the lower end of the spectrum longer term", Rick Spencer, Head of Funds & Co-Investments, Barings, said this afternoon.
In long-term investments, ESG is crucial, but at the moment, the easiest way to make the case for it is in infrastructure.
1 LPs, as discussed on Day Four, have incorporated sustainability and ESG into their due diligence processes. Moreover, some LPs, like Amir Aviv, Managing Partner, Gatewood Capital Partners, have taken the extra step and made sustainability matters into policies and set KPIs around them.
2 Don't start your pitch with the economic talks. Joe Aguilar, Director, Investment Analysis & Due Diligence, Illinois State Treasury, said in the panel, that there are other, much more important factors that LPs want to know about you, like your team structure and dynamics, strength of your pipeline, and what makes your strategy sustainable in 5, 10, or 15 years. "Our objective is to be long-time investors", Aguilar said.
3 Because of this, diversity, whether that's gender, ethnic, social, or diversity of thought, is important. Jennifer Vancini, General and Founding Partner, Mighty Capital, said: "We mostly get questions, curiosity, and interest from LPs, but we're expecting this to be more institutionalised."
4 Then when you talk about economics, J. David Enriquez, Head of Private Equity, Office of New York City Comptroller Scott M. Stringer, Bureau of Asset Management, would want to see a high level of transparency and disclosure.
Pam Hendrickson, Chief Operating Officer and Vice Chairman Strategic Initiatives, The Riverside Company, shares how innovations in deal-making at the time of COVID-19 has changed the way we build partnerships.
Which classes of private equity have done well? How has Covid-19 changed the game in PE? Mark Sotir, President, Equity Group Investments, joined us to explore these questions and more.
The technology sector has stayed strong the past few months, but how do you pick your investments? Hear from Rudina Seseri, Founder & Managing Partner, Glasswing Ventures.
How has the direct lending market changed in 2020? Hear from Matthew Harvey, Managing Director, Direct Lending at PGIM Private Capital, as he shares where the challenges and opportunities lie.
