10 Ways the Coronavirus Pandemic Has Affected Institutional Investment Activities
Below, we have summarized some of the main themes recently shared by institutional investors on how the current market’s volatility is impacting their allocations, focus and plans.
1. Access to Previously Closed Hedge Funds
- Keeping track of some of the best managers’ closed funds as they might be opening for extra capital to invest. Blue-chip managers, which have been closed to new money for many years, are now raising funds to take advantage of the market volatility and capitalize on historic buying opportunities. The reopening remains selective though as priority is given to existing investors.
2. Increase in Cash Holdings
- Institutional investors are aiming to keep a little bit more cash-on-hand than usual but that should be just a slight percentage of the total portfolio size.
3. Liquidating Listed Equities at a Loss
- Currently public equities may be liquidated at a loss. It is hard to unwind current positions in PE and cash is needed when a large amount of capital is called by GPs.
- In the mid/ long term once things start turning around, investors are planning to overweight equities.
4. Increase in Allocations to Stable Value Assets
- Allocation to “stable value” assets like government bonds and stable value hedge funds should increase in the short term. Value investing is also an opportunity because the strategy tends to do well after a recession.
5. Slowdown in Private Markets
- LPs are balancing strategies for their private portfolios with the needs of their public equities’ teams. Private investments are likely to be down, but it is unlikely to be a dramatic drawdown, those marks do take time to reflect in the portfolio.
- Many LPs believe the plan is to stay the course and that commitment levels will be maintained. PE is a long-term asset class- it is all about timing.
- LPs have learned a lesson about the importance of vintage-year diversification through a downturn, they are more inclined to maintain a steady pace of fund commitments amid the current crisis.
6. Re-Ups with Core Managers
- LPs have a long list of GPs to review and as the due diligence process cannot be done fully remotely, priority will be given to re-ups and existing relationships over new ones.
7. Selective and Opportunistic Strategies
- LPs are more selective with new commitments with an increased focus on top opportunistic strategies, e.g. distressed or secondaries.
8. A Move Towards Private Debt
- Private debt funds might also fain traction amid adjusted valuations and opportunities.
- Distressed debt will have immense opportunities in the next six to 18 months.
9. More Paid into Funds than Paid Out
- Industry capital calls will exceed distributions in the near term as the drop in exit activity slows payouts to LPs. GPs, meanwhile, will step up draws to help shore up their portfolio companies.
10. Increase in GP to LP Reporting
- GPs are now being asked to provide more comprehensive reporting more frequently as LPs increase their requirements for the reporting on portfolio companies.