Hundreds of Billions in New Capital Earmarked for Investments. 

Despite many businesses closing down due to the COVID-19 pandemic, private equity is taking advantage of new opportunities.  The industry is looking to rebuild the economy and adapt to the New Normal in ways that are expected to enahance gains, inclding further investments in existing portfolio companies, acquiring distressed assets, and pursuing opportunities in markets fast emerging as byproducts of the global pandemic.

One of the greatest sparks driving the equity advantage during the current market turmoil is the available unallocated capital.  As of the end of 2019, private equity had over $2.5 trillion in dry powder — or available capital — $830 billion of which has been earmarked for near-term buyouts.

A Closer Look

A more detailed analysis highlights that investment opportunities for private equity may focus disproportionately on existing portfolios.  This means that firms will focus on assisting companies that are already struggling rather than narrowing in on growing companies and startups.  For emerging industries, private equity is eyeing such areas as medical supplies and technology, supply chain and logistics management, real estate, and remote work.  Medical supplies and technology have proven to be essential since the onset of the pandemic.  The dangers of medical supply shortages and inability to treat patients has prompted a surge in demand for medical supplies and technology.  Additionally, the crisis has made clear North America’s over-dependency on countries like China for essential supplies such as PPE. 

Another crucial emerging market is the real estate industry.  This does not include traditional real estate models, but a growing need for data centers and storage for artificial intelligence.  As many commercial real estate related buildings close down, this shift will become more apparent. 

Many companies also have announced that they will be moving fully remote, while others are expected to move at least mostly remote for an indefinite period.  As such, there is an emerging opportunity to invest in IT infrastructure and cybersecurity.  

Distressed Businesses and Outlook

Ultimately, distressed assets will continue to be eyed by private equity investors.  Private equity will start investing in public equity as assets drop.  Private Equity firms will also start to lend capital to struggling companies.  Essentially, they will take risk in companies whose valuations have dropped.  Lastly, food and agriculture will be financed by private equity investors in order to replenish the industry.  This is already coming to fruition through Farm Credit Canada’s $100 million Agriculture and Food Business Solutions Funs.  Fundamentally, private equity will undoubetdly be playing a crucial role in revitalizing the global economy and taking advantage of emerging opportunities that should bode well for PE investors in the months ahead.