Elm Capital: Private Markets Review

May, 2020

Elm Capital: Private Markets Review

  • The rapid onset of the Covid-19 crisis has diverted attention of both GPs and LPs from new deal activity to estimating the impact of the lockdown on their portfolios.
  • GPs are equally focused on assessing the need of injecting capital into their portfolios and evaluating options to take advantage of market dislocation opportunities.
  • LPs spent the first few weeks of the crisis analysing how the cash flows from their portfolios would be impacted by the new environment, and are starting to look at new investment opportunities, albeit with enhanced diligence for new primary relationships and downside protection for secondary deal structures.
  • With the progressive implementation of Phase 2 and the reopening of select economies, we expect a gradual thawing of private markets activity over the course of 2020 and the restart of opportunistic capital deployment by both GPs and LPs.
  • We had already observed an increased risk aversion and detected a drop in secondary market pricing in H2 2019, with buyers requiring higher discounts to compensate for lower expected returns in a perceived top of the economic cycle. The current crisis is likely to amplify pricing volatility in the near term.
  • Against the difficult operating environment, Elm Capital successfully closed the fundraising of Montefiore Investment V, two GP-led transactions, and two LP-led portfolio sales in Q1 2020.

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