Throughout the fall, our New York team is sharing their insights on the business issues at stake as we head toward November. This week we take a deep dive into the world of private equity.
Private equity sponsors have increased their focus on distressed investments, as well as on sectors weathering the crisis well such as healthcare, biotech and renewables. Biden's tax plan to raise corporate taxes to 28% and the corresponding decrease to corporate cash flows may negatively impact company valuations for PE-owned businesses. Likewise, Biden's plan to increase the long-term capital gains tax rate could well inform the timing of exit transactions for PE-owned companies. Meanwhile, private equity fund formation activities are responding to the current unique economic conditions:
- State of fundraising. A new focus on distressed companies has emerged as well as increased interest in secondary funds, private credit funds and real estate. Deal terms have also changed for both sponsors and LPs.
- Fund operations. LPs are well advised to continue to assess their communications strategy with investors to ensure transparency and maintain strong relationships.
- Regulatory observations. Investment advisers should continue to review their existing practices, policies and procedures to ensure consistency with the SEC's examination priorities and areas of focus and with their fiduciary duty obligations.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
