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PE investment in downturn is better for a long time.Ahmedabad Wealth Management
Since 2022, the global capital market has been in a downturn.Many overseas private equity investment institutions (PE) are also thinking about how to achieve stronger performance.We compiled the insights given by Moonfare (a new private equity retail platform founded by a former executive of KKR).
The original text mentioned that the factors of the success of the US private equity in the crisis include more flexible capital supplement capital, more proactively managing investment portfolios, and low liquidity, but they can avoid panic selling.These ways to maintain toughness of private equity funds may also be worthy of the reference of local investors and improve and play according to local conditions.
-01-Jaipur Stock
Market downturn period adhere to PE investmentBangalore Stock Exchange
Return is better
PE investment in downturn is better for a long time
In the past two decades, the historical data of private equity in the United States shows that PE, which has maintained investment rhythm during the turbulent period, is better than those who retreat.
Pitchbook data shows that during the 2001 Internet bubbles and the global financial crisis from 2008-2009, PE instead harvested the best return on history.Based on the seven -year life cycle of the fund, the fund TVPI (total value/real -capital of fund investment in the fund investment) of the two crisis periods was 2.11 times and 1.151 times, respectively.
The performance fluctuates smaller, the rebound is faster
During the period of Internet bubbles and the global financial crisis, the market is in a stage of deterioration, and private equity also shows relatively strong anti -risk capabilities; compared with stock investment, investment multiple has a small blow.
During the breakdown of the Internet bubble, the value of investment portfolio of the US M & A fund fell less than 13%, the European M & A funds fell by about 7%, and the S & P 500 index fell 40%at the same time.Investment manager Neuberger Berman’s 2020 studies have drawn similar conclusions.During the global financial crisis from 2007 to 2009, PE investment fell less than the stock market, and the recovery speed was faster.
It’s just that the rhythm of the recovery of different industries is slightly different
Taking the global financial crisis as an example, after a weak return in 2007, the fastest performance in 2008 was the field of science and technology and healthcare, and the energy and mineral sector was relatively backward.By 2009, the economic recovery of the economy, the average return of PE investment in various industries has a significant rebound. Even the worst percentage of the funds of each subdivided track also returned to the positive income. Among them, commercial services, consumption, consumption, consumption and consumptionInterest began to surpass technology.
However
However, a period of downturn in the market, a large amount of funds have evacuated due to panic, but missed the opportunity to acquire high -quality assets with a large discount.According to Ernst & Young reports, in the two years of the best income in 2008-2009, PE investment funds fell 80%, and the peak value of nearly 800 billion US dollars fell to US $ 170 billion.
-02-New Delhi Investment
Market downturn PE investment
Three elements that show toughness
Looking back at the 2008 global financial crisis, many people predict that the M & A fund relying on high leverage models cannot continue, and large -scale defaults will occur.However, historical data tells us that many PEs have not collapsed, but instead survived the market adjustment and economic transformation.
We believe that the following three key elements provide sufficient support for the PE fund:
Provide more flexible capital support for the invested enterprise
PE investment institutions’ more flexible and positive capital allocation capabilities is essential for preventing investors from bankruptcy.A study shows that the risk incidence of "catastrophic loss" (referring to the value of corporate value from a peak from a peak of 70%and almost no rebound) that PE’s investment enterprise is 18%is half of the listed company.Researchers at the University of Stanford and the School of Management of Kelogg also said that for companies that have no risk of business quality due to the financial environment of the financial environment, the positive effect of PE’s active investment is particularly large.
A study of nearly 500 PE in the UK during the global financial crisis has also further proved the toughness of PE investment.Compared with the continuous shrinking front of PE investment, PE being invested during the financial crisis in 2008 is more likely to increase capital expenditure. Therefore, these PE invested companies can recover faster from the crisis, and they can use them.To achieve market share expansion and faster growth.
Although the financial crisis in 2008 led to global bank credit tightening, PE institutions can also leverage other flexible financing channels, such as private equity credit.Preqin data shows that since 2009, private equity credit has gone through unprecedented growth, from US $ 320 billion in 2010 to $ 875 billion at the end of 2020.The activity of private equity credit provides more buffer for PE institutions and investment companies to respond to economic impact.
Active management, focus on operating value creation
Under the unfavorable economic environment, the help of the post -investment team that can create the investment companies is also huge.
After the investment team, the team mainly helped the invested enterprise to supplement the shortcomings and promote the transformation.Value creation services are particularly valuable in areas with high professional knowledge barriers, such as entering new markets, informatization, and onlineization.McKinsey’s report shows that in the period of economic downturn from 2009 to 2013, the fund performance of valuable creation teams was 5 percentage points higher than the fund return rate of funds without related teams, and the differences in market prosperity were limited.
In 2008, only a larger PE fund had operating expertise.Many PE funds can now provide sufficient support for the invested companies to overcome the challenges and develop faster.
PE fund’s low liquidity
Compared with other asset categories, especially stock investment, private equity is often poorly liquid.Although it is not possible to sell equity quickly as a obvious disadvantage, it can help investors to avoid panic selling, and panic selling usually brings higher losses.Long -term investment carried out by professional investors is actually hedging and protection of high fluctuation investment.
-03 –
Manager’s ability affects the final performance
Although PE investment has certain advantages as a whole, there is still greater performance differentiation between institutions.Observing the performance of the US public equity and private equity funds from 2013-2018, it is clear that the performance differentiation of private equity funds is more obvious than the securities fund.
PE institutions with good performance often have extensive project search capabilities, rich industrial knowledge and professional experience, and post -investment teams that can create value can help funds get excess returns during the economic downturn.
Therefore, it is important for investors to strictly select managers.
During the downturn in the market, regardless of overseas or India, PE institutions will feel greater pressure, which is the pain of cycle fluctuations that must be afforded.However, panic and retreat are not the best choice. Instead, they should actively use the PE institution’s own advantages, use the economic downturn to make enough homework, and prepare for the asset value rebound.In the middle and long term, active and active PE institutions will eventually bring better returns to investors.
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