The TresVista Investor Confidence Index for U.S. middle Private Equity was created to track investor sentiment and create a bellwether for investor confidence among this class of asset managers. Conducted on a quarterly basis, we survey and speak to Middle Market Private Equity GPs on how their business fared compared to the previous quarter across a range of areas including deal sourcing, fundraising, deal execution, portfolio related activities, and more. The report can be accessed below.
TICI Q4 2020
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.
TICI Q3 2020
Since the onset of the pandemic, private equity GPs have faced a plethora of challenges, from the debate around eligibility for PPP loans to portfolio write-downs or additional liquidity needs, the inability to meet with LPs from a fundraising standpoint, conducting diligence over zoom calls, and of course the absence of camaraderie that results from having everyone in the same office. Despite these challenges, there have been a few bright spots for GPs that have skillfully adapted quickly to the new environment as well as those that are investing in some highly sought after industries (healthcare & technology to name a few) and strategies (distressed & turnaround transactions). The way asset managers are operating has also evolved in a broader sense, with more teams embracing remote working as a long-term solution and generally increasing focus around technological capabilities and infrastructure.
The market slowly started to turn a corner in the third quarter of the year with investors coming back to the table to push deals across the finish line that had been on the backburner, looking to put capital to work, getting back to the fundraising trail, and testing the market for exits. Though not out of woods by any stretch, investors seemed like they were ready to get back to it. Our goal in conducting this research was to find out how ready they were and will be.
By surveying a group of middle market private equity investors in U.S., we aimed to establish where confidence among this class of asset managers has trended and will trend. How far back have we bounced from the disruption witnessed early in the year? What are investors seeing with respect to quality of deals, portfolio liquidity needs, valuation levels? We explore these areas and much more in our inaugural quarterly report on tracking Investor Confidence for the U.S. Middle Market Private Equity industry.