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73% of PE, VC managers expect drop in dealmaking following COVID-19 fallout

Just 27% of private equity and venture capital fund managers globally expect investment activity to remain flat or rise in the coming months, with the remaining 73% taking a more pessimistic view, as managers grapple with uncertainty following the spread of coronavirus, according to an S&P Global Market Intelligence survey.

Of the 142 managers polled globally, 30% expect dealmaking to slow by between a quarter and a half, with 29% expecting a volume dip of one-quarter and 13% taking a more negative view, predicting a drop of over 50%.

The largest proportion of North American and Latin American respondents expect activity to decrease by between 25% to 50% in their regions. There was more optimism from respondents in Europe, the Middle East and Africa, with the majority of respondents expecting activity to dip by less than 25%. Asia-Pacific respondents were particularly upbeat, with the largest proportion expecting investment activity to remain flat or decrease.

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But that does not mean managers expect their own investment pipelines to come to a halt. More than half 58% of respondents globally will focus on making new, selective investments over the coming months, with 23% indicating they will focus on stabilizing their portfolios.

A smaller number, 10%, will focus on fundraising. Managers with stable, or attractive strategies have seen increased interest from limited partners. Some whose strategies focus on impacted sectors, along with emerging managers, have delayed their fundraising trajectories into 2021, deploying capital carefully as dealmaking has slowed down and been disrupted. Just 4% expect to focus on making selective divestments as managers in some instances push back exit horizons, given the uncertainty.

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The majority of manager respondents, 83%, said they were confident they have enough access to liquidity to support the majority of their portfolio across the coming months, a sigh of relief for the 40% who indicated the biggest challenge they had faced at portfolio company level during the coronavirus outbreak was liquidity and finance concerns.

Around one-fifth indicated the impact of coronavirus on their workforce their safety, mobility, positivity and infrastructure was the biggest challenge they faced, with a further 18% saying supply chain and other operational disruptions caused the biggest headache.

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In terms of preparedness, 43% of respondents globally said more than half of their portfolio companies had business continuity plans in place before the spread of the coronavirus, with 38% indicating less than a quarter of their portfolio having such plans and 19% of managers having plans in place for 25% to 50% of their portfolios.