The fieldwork for our Global Private Equity Outlook 2020 report was conducted in the midst of the COVID-19 outbreak. We received responses from circa 150 private equity fund managers based in North America, EMEA and Asia. Kees Jager, Head of Fund Services in Guernsey, discusses the findings which highlights the main challenges and opportunities for the private equity sector in the coming 12-24months.
COVID-19 has dramatically impacted the sector outlook for the year, with many private equity firms, their investment strategies and portfolio companies being severely tested.
However a third (32%) think the environment for private equity will improve and around half (47%) say they're optimistic the industry will be able to face the pandemic and ultimately come out stronger.
There are three clear trends take away from our survey:
Firstly, that Environmental, Social and Governance (ESG) considerations will increase in importance, in terms of how firms run and for the companies they invest in. COVID-19 is widely seen as catalysing this shift as the world embraces a 'green is good' mentality.
Secondly, the drive for greater transparency remains an absolute priority for firms and their stakeholders, particularly regarding portfolio performance.
And thirdly, that smarter technologies and digitisation will drive operational efficiencies and support the push for greater transparency, as well as investment opportunities. The vast majority of our respondents (84%) said they were optimistic that they'll benefit from digitisation over the next 12-24 months, with 29% being "very optimistic".
According to our research, the biggest threat - disruptor - to growth is seen as a synchronised economic downturn across markets: this is viewed as almost twice as challenging as the COVID-19 pandemic, for instance. Digitisation, in contrast, is seen as the least threatening - indeed, the majority of respondents to our survey (84%) see it as a core enabler for growth. This isn't just in terms of portfolio company opportunities but in how private equity firms themselves use digital technologies to deliver enhanced returns and become more efficient.
The drive towards higher levels of investor reporting and transparency has been a key aspect of the private equity industry long before the current economic crisis. We believe very strongly that it will remain top of the agenda, with stakeholders such as regulators and clients demanding more granular levels of reporting and portfolio insight. The firms providing this, will likely attract higher levels of capital.
At the heart of providing greater transparency lies technology, with digital tools seen as playing the major role in the industry. We place significant focus on delivering sophisticated data solutions to our clients as we see this as underpinning our growth. Our own process automation platform allows managers to view all documents relating to underlying entities such as director resolutions. We're investing a huge amount of resources into data aggregation through our client portal IRIS, giving our clients complete visibility over their entire portfolio.
Our deep domain capabilities, coverage in more than 30 jurisdictions and leading tech-capabilities has underpinned our own business growth and expansion. New requirements such as the demand for virtual board meetings and digital signatures, as well as the need for online business activity monitoring and investor reporting tools are accelerating the digitisation of our own business. As financial markets move forwards, private equity firms are realising that outsourcing - fully or partially - is a key opportunity when considering their future operations.
Over the next five to 10 years, we expect that most support functions will likely be outsourced - leaving firms and managers free to focus on core activities. We believe the industry is about to go through a shake-up seeing a tangible shift towards outsourced models.
For Intertrust this is very much the reality of today, not the future.
To download our Global Private Equity Outlook 2020 report, please click here.
Originally published 19 JUN 2020
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