Coronavirus Impact on the Portfolio of Private Equity Firms



Owners of the private equity firms across the globe are struggling to balance out the business consequences in the wake of the epidemic. Leaders in the global private equity industry are currently busy assessing the risks company by company, and preparing the damage-control plans.

Measuring the ultimate impact of the outbreak is impossible, but efforts can be made to lessen the potential adversity. Economic activities have almost come to a halt in the global financial markets leading to creation of ripples in the oceans of the finance sector.

Precautionary Steps to Control the Damage Are Already Being Taken

A majority of PE firms, by now, have already started building damage-control plans to limit the pandemic effects on their portfolio. Emergency response teams have been made, employee insurance plans are being built up, and there exist a constant communication with the investors in these tough times.

Clear and effective action plans are being made to resist the adverse impact of the pandemic on the portfolio companies. Varied portfolio companies will suffer varied kind of losses, and that demands of PE firms to make customized damage-control plans for each portfolio firm they have under their name. Tactics such as drawing down credit lines and mindfully handling the working capital are being considered to mitigate the losses across the entire portfolio.

The big question is: what preventive steps to take? With limited resources and time at disposal, PE leaders should analyse the degree of danger to each portfolio company, and accordingly, develop tailored action plans. Clear priorities shall be chalked out in relation to neutralizing the biggest of financial threats.

US Private Equity Industry Witnessing a Downfall in Revenues

Top Private Equity Firms in Austin Texas, which is the second-largest state and a prominent business hub, are struggling to keep up with the downfall of US economy in the times of the global epidemic. Top Texas-based PE firms like AV Capital and Legacy Star Capital Partners have shown continuous decline in their respected revenues in the last two weeks.

Fund Managers at PE Firms Need to Quickly Swing Into Action

The responsibilities of fund managers further multiply in these times of crisis. They should be undertaking following damage-control tasks:

  • Assessing potential risks for each portfolio firm.
  • Identifying firms with greater potential of affecting fund performance
  • Creating tailored action plans for each high-impact portfolio firm.

Analyzing Risks & Threats Associated with Portfolio Companies

To neutralize the negative effects of Coronavirus epidemic, PE firms can start with risk assessment for every portfolio company it has got under its umbrella. It is important to calibrate the risks with the evolving market scenarios. It is a given that the circumstances and situations will differ based on different governments and geographies. The most critical step that is needed to be taken by private equity professionals working at different PE firms at the moment, is identifying the portfolios that demand instant action to be taken to limit the consequences.

Carve Out Customized Preventative Plans

An effective customized plan will contain strategically-designed initiatives that a firm can implement on an ad-hoc basis. For every vital portfolio company, it will provide for a roadmap that help mobilize the resources, i.e. capex/open injections, outside expertise, and project staff. Well-led PE firms would develop an infrastructure for learning. They will constantly follow-up on initiatives taken, and will share the best practices across their portfolio.

Full lockdown implemented by the governments in the financial markets can pose a big threat on the short-term outlook of PE companies. Each element of the financial market has been disturbed, ranging from supply chain, workforce availability, investments, demand, and supply. Companies currently need to first assess their financial situation, and basis that, can fabricate their next steps.

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