PE giants eyeing 2 opportunities amidst COVID
PE giants eyeing 2 opportunities amidst COVID
We talked to 14 private-equity insiders about how they’re planning to play the coronavirus turmoil. They identified 2 huge opportunities. Market chaos is creating crises and opportunities. Private-equity firms are scrambling to manage both.
As the stock market crashes, and the global spread of coronavirus delivers a blow to sales from plane tickets to draft beer, private-equity firms — the giant managers of companies such as the bookseller Barnes & Noble and the dating app Bumble — are scoping out new investments.
But they’re looking to ramp up in just about everything but actual private-equity stakes.
Firms like Apollo Global Management, Oaktree Capital, Blackstone, and Ares Management are staffed to buy debt in troubled companies. Others like KKR and Silver Lake have divisions focused on something not as closely associated with private investing: minority stakes in public companies.
These two areas of investing are expected to play a crucial role in deciding who owns what when the dust settles. And private-equity shops, which are equipped with hundreds of billions in unused investor dollars, are well-positioned to snap up their selection of distressed assets while also offering liquidity to companies in need of support, according to bankers, lawyers, and consultants.
But with deals paused because of economic turmoil, a near-term challenge for private-equity firms is putting out fires at their own businesses.
Private-equity firms are busy communicating with their existing portfolio companies about how to maneuver the fluid situation, assessing business repercussions and suggesting when they should draw down on credit lines, private-equity execs, consultants, and bankers said.
“The pandemic has spurred a period of greater focus by PE firms on portfolio companies — partly because of the challenges they’re facing of both supply and demand and partly because the current uncertainty has caused many deal and fundraising processes to stumble or pause,” Bryce Klempner, a partner with McKinsey & Co. who advises private-equity firms, said.
Peter Martenson, a partner at the fund-placement firm Eaton Partners, said private-equity firms, along with growth-equity and venture-capital companies, were “triaging their portfolio aggressively” and that he expected private-equity shops to hold their assets longer to ride out the downturn.
The comments came from conversations Business Insider had with more than a dozen bankers, lawyers, private-equity execs, and consultants since Monday to better understand how private-equity shops are planning their next moves.
The coming weeks and months will demonstrate how businesses weather the downturn, but private-equity shops are already scrambling to aid companies in industries such as travel, leisure, and hospitality, creating loans directed at carrying them through the period with their employee bases relatively intact and without a bankruptcy filing.
On the investing front, one private-equity executive told Business Insider there wasn’t much available to invest in at the moment outside public equities — and that his firm, which is one of the largest, was increasingly focused on liquid investments like loans, bonds, and public stock. He spoke on condition of anonymity because he was not authorized to speak publicly, but Business Insider confirmed his identity.
Meanwhile, one sponsor banker said private-equity execs were busy managing their portfolio companies and advising them on new policies in light of the coronavirus. But he said they expected to be called upon in the near future to provide creative liquidity solutions for large, including public, companies grappling with a slowdown as a result of the coronavirus.
This person, whose identity Business Insider confirmed, spoke on condition of anonymity to preserve private-equity relationships.
Firms positioned for the downturn
Preqin data, along with bankers and lawyers, pointed to a handful of firms, such as Apollo Global Management, Oaktree Capital, Blackstone GSO Partners, and Ares Management, as players whose distressed-debt divisions are positioned to pounce on the downturn.
These firms have not yet made big announcements about distressed investments related to the recent downturn. In the 2008 financial crisis, Apollo deployed more than $50 billion in four months, according to Leon Black’s comments at a private-equity conference in February.
“A downturn would not be a bad thing for Apollo,” he said at the SuperReturn conference, which was held while the spread of the coronavirus was just starting to ramp up and it was still unclear how it would affect the global economy.
Now senior credit professionals are seeking out lending opportunities in businesses directly affected by the downturn, though they would not share specific deals or companies.
Cruise lines, bars and restaurants, live-entertainment companies, and airlines have all seen revenue plunge as a result of the coronavirus and are considered some of the most obvious areas of opportunity, private-equity executives and bankers said.
At the same time, portfolio companies under management of some of the same firms are taking a beating as a result of the coronavirus.
Hospitality names are taking a big hit
For one, Blackstone has poured billions of investment dollars into businesses that are now getting slammed by the coronavirus.
One deal was the copurchase of Merlin Entertainment, the large visitor-attraction operator that controls the amusement park Legoland in Florida. Legoland said on Friday that it would join other amusement parks in shutting down its theme and water parks through the end of the month to ride out the coronavirus.
Blackstone also bought a controlling stake in Great Wolf Resorts, the owner and operator of family-oriented entertainment resorts such as Great Wolf Lodge, in October. On Monday, Great Wolf announced it had closed all of its 19 resorts in 13 states because of coronavirus concerns, with plans to reopen on April 2.
Two other large investments it made in 2019 were the purchases of the Bellagio from MGM Resorts International and US warehouse properties from the logistics company GLP in an $18.7 billion deal.
MGM announced Sunday it would close all of its resorts, including the Bellagio, because of the coronavirus. The effect of the coronavirus on Blackstone’s US warehouse properties could not be immediately determined.
A Blackstone spokesman on Tuesday said the firm’s investors “are and always have been long-term investors.”
He also said the firm had successfully weathered many crises in the past, including 9/11 and the 2007-09 global financial crisis, and still delivered outstanding performance for clients. “Our confidence in this approach remains stronger than ever,” the spokesman said.
A private-equity firm typically holds on to investments for five or so years, so a monthslong slowdown doesn’t necessarily translate to a financial loss for private-equity firms, but it will likely cause firms to change up how they manage their assets, including recapitalizing investments by selling stakes, experts said.
Fundraising put on pause
The uncertainty in the market, coupled with the inability to conduct on-site meetings, put a pause on some fundraising for private-equity shops, according to placement agents.
At the same time, some investors no longer have the appetite to put their money in illiquid investments this year, they said.
Alan Pardee, a placement agent with Mercury Capital, said it was still early to predict how investors would react to the coronavirus and resulting market volatility. But from what he has seen so far, there are a number of investors who are adjusting by scheduling video and regular conference calls as a substitute.
“We are aware of a couple [investors] that have said things along the lines of, ‘I’m not doing any more illiquid strategies for the balance of the year,'” he said. “We’ll see how the market sorts out, given the continuing downdraft in the public markets.”
The coronavirus could also make more attractive areas of private-equity investing that are not as correlated with the markets, like litigation finance, life settlements, music royalties, and needs-based real estate, such as self-storage, rental homes, and medical offices, placement agents said.
Gaw Capital Partners Takes Top Spot in APAC Fund Manager Ranking by PERE
September 1, 2021, Hong Kong – Gaw Capital Partners ranked first in PERE’s APAC Fund Manager Guide, a ranking based on capital raised over a five-year period, which shows the top 50 fund managers…
Mercury Capital Advisors Appoints Michael Ricciardi as Chairman Emeritus
Mercury Capital Advisors (“Mercury”), among the world’s elite global private fund placement and advisory firms, today announced that it has appointed Michael Ricciardi, Chief Executive Officer and Co-founder of the…
Mercury Capital Advisors Announces Four Senior Hires for Distribution Team
Mercury Capital Advisors today announced that it has added four senior professionals to amplify distribution efforts for the firm. Matthew Haimes, based in London, Jill Cohen and Jennifer Tunney, both…
10 Biggest Trends Shaping the Next 3 Decades, According to Big Investors
Institutional investors and family offices in a recent survey cite digitization, aging population and climate change as the most important trends that will shape the global economic landscape in the…
Investcorp partners with 17Capital to structure portfolio of alternative assets
17Capital, the global go-to source of strategic financing for investors in private equity, and Investcorp, a leading global provider and manager of alternative investment products, are collaborating to structure a…
Opportunity-Zone Funds Gaining Momentum
After a slow start, managers of opportunity-zone funds have been raising capital at an accelerated rate, according to Real Estate Alert’s second-annual review of the sector. Twenty-two sponsors working independently…
Oaktree Leads Rush of New Distressed Funds Seeking $30B
A wave of distressed debt and special situations funds has hit the market in recent weeks in response to the Covid-19 pandemic downturn, jumpstarting a segment that had dwindled to…
Crisis Sidetracks Fund Shops’ Equity Raises
The coronavirus chaos is taking its toll on fund managers’ capital campaigns. Operators across the country are postponing initial and final closes, or discussing doing so, as investors focus on…
PE giants eyeing 2 opportunities amidst COVID
We talked to 14 private-equity insiders about how they’re planning to play the coronavirus turmoil. They identified 2 huge opportunities. Market chaos is creating crises and opportunities. Private-equity firms are…
LPs Slow Pledges to Debt Vehicles
Demand for high-yield-debt funds appears to have softened in the past year. The amount of equity raised by active closed-end vehicles is down for the first time since 2013, according…
Investors Tap the Brakes on Fund Commitments
After several years of explosive growth, the market for high-yield real estate funds is slowing. The total amount of equity managed in closed-end funds fell for the first time since…
Bain, TPG Go Long in Major Push into Public Equities
Bain Capital and TPG have rolled out new vehicles focused on long-hold public equities – aiming for billions of dollars in new capital and further blurring the lines between the…
Brookfield Grabs Quick $1B in New ‘Special Opps’ Push
By Tom Stabile Brookfield Asset Management raised a quick $1 billion last quarter in a new wide-angle special opportunities fund – aiming for a less travelled product area in which…
Why Investcorp is buying Mercury
We don’t often see managers buying placement agents, but in this instance the rationale is clear. In an industry in which growth is currently the norm (spoiler alert: our PEI…
Mercury Capital Advisors Group Announces Strategic Investment by Investcorp
Mercury Capital Advisors Group, L.P. (“Mercury”), one of the world’s elite institutional capital raising and investment advisory firms specializing in alternative investments, today announced that it has entered into a…
Private Briefing: Young PE Firms Double Down On Entrepreneurship
When Alex Navab left KKR & Co. LP (KKR) two years ago after running the firm’s Americas private equity unit, his resume would have opened doors at the largest PE…
PEI: Side Letter
Mercury rising. Mercury Capital Advisors has tapped Tom Donovan as a partner and one of three co-heads of global distribution. Donovan, whose CV includes stints at Lazard, Rede Partners and Credit…
Distressed Debt Funds Slide Back into Spotlight
Distressed debt managers are primed for a new round of fundraising this year as investors see global economic hiccups setting the table for investments into troubled companies and deals. And…
Q3 Secondaries Fundraising Hits Second-Biggest High
Five secondaries funds closed in Q3 2018, compared with seven in the same period of 2017, withLandmark XVI the biggest. Secondaries funds raised a shade less in the third quarter…
Twenty Fundraisers with Pulling Power
Who would you want to be working alongside if you had a pool of private debt capital to raise? From that question, we identified some of the industry’s key players…