TresVista Investor Confidence Index: U.S. Middle Market Private Equity Quarterly Report for Q4 2020

April 2, 2021

More of the same with light at the end of the tunnel. This is likely the most apt description of investor confidence in the fourth quarter of 2020 that we can distil from conversations with investors. Amid a year of widespread disruption, Private Equity as an asset class ended the year on a positive note, although the drivers behind this performance are meaningfully different than a year ago. The key factor is the volume vs. value compared to last year. While overall deal value in PE in 2020 compared favorably to 2019, deal volume was lower due to the COVID led disruption. The inference is that larger deals are here to stay and will continue to be concentrated in the more sought-after sectors, namely technology and healthcare.

In terms of PE portfolios, investors continue to telegraph a high level of engagement with their portfolio companies, and given the continued uncertainty in the marketplace, this is likely to persist. Similar to our finding in our Q3 2020 report, investors have spent more time on average in sourcing new deals and new deal diligence activities in Q4. In efforts to find ways to put money to work, a long dormant trend showed a resurgence – SPACs. We piloted a deep dive into this trend through an insightful discussion with SPAC experts (SPAC Webinar).

The more systemic trend pattern is around valuations. With dry powder continuing to pile up at record levels, and a dearth of high-quality assets in the marketplace, asset valuations have continued to rise and pressure on managers to generate performance continues to grow. High valuations are likely to be the new norm as cash is essentially becoming devalued as an asset class. Lastly, looking back at the work from home situation and everything from virtual conferences to video call fatigue, there is some hope that the latter half of 2021 will bring around a sense of normalcy, though likely with lingering effects of the disruption for some time to come. While some folks are back in the office (and while yet others are moving offices), and others still stuck in their living rooms, one thing is clear from this survey and conversations with investors: the investment community is still finding ways to raise capital, find deals, put money to work, and repeat.

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