Private equity firms in the U.S. have performed significantly well during the first half of 2020, amid the economic adversities that engulfed the global financial and stock markets. However, the said industry sector has not been immune to the Corona epidemic, but surely, has been able to minimize the impact of the same.
While the industries across the world, other than private equity, are fighting for their survival in the market, private equity has shown solidarity. The private equity industry in the U.S. has emerged as an exception to what’s happening around the world in the context of trade & commerce activities, amid the pandemic.
PE Still Benefitting from the Fund Deployment Made During 2008 Crisis
US private equity firms are earning an average annual return of 18% from the funds they deployed during the financial crisis of 2008. Private Equity Investment professionals, that are working in the role of managers, are constantly receiving funds from wealthy institutional investors in the present. The largest of PE firms have now, collectively, formed financial conglomerates, thereby clinching big buy-out deals.
With the robust support from US Private Equity associations, PE firms in the US, are now cracking an increased number of deals in the credit and real estate markets too. They have successfully been able to take over the jobs of many Wall Street banks that have traditionally been dealing in the talked-about markets. US private equity firms, at present, hold assets worth $4 trillion. 8,000 PE firms in America, which comprise the top private equity firms in Austin tx, amounts to 5% of the country’s GDP, and the same percentage of the US workforce.
Potential Impact of Corona Crisis on America’s PE Sector
The current COVID recession is at its peak in the U.S. and the performance of the private equity sector matters a lot, in terms of the state of the country’s economy, and the financial condition of its big investors. The leveraged firms in the portfolios of the PE companies in the U.S. are seemingly vulnerable, and a lot depends on the fund managers in terms of utilizing the capital at their disposal.
With pandemic forcing a few PE firms in the U.S. to lay-off a certain percentage of employees to maintain the liquidity, private equity jobs do have taken a hit in the country, but the event has not resulted in some catastrophic impact on the economy. However, those (a small percentage of the country’s workforce) who have lost their jobs may need to wait until the economy revives, fully.
PE in the U.S. is Stacked with Dry Powder, Amid the COVID-Led Economic Downturn
Despite the crisis widening its jaws, and swallowing businesses and industries, left, right, and center, PE, still, has been able to accumulate a whopping $1.6 trillion as a dry powder, which it can spend on cracking new investment deals. PE’s fate in the U.S. currently lies on its active investments, and the ROI they would generate out of them. Or else, the industry can lose the monetary gains, which they stockpiled from the dealmaking during the 2008 financial crisis.
Having Incurred Significant Losses in Q1, PE Seems Hopeful of the Future
Counting on the losses incurred by the private equity industry in the U.S. in the quarter one of 2020, the four of the largest PE firms (Apollo, Carlyle, KKR, and Blackstone) in the country recorded a consolidated loss of $90 billion, across their portfolios. Although, it sounds like a huge loss,, is merely 7% of the assets under their management, collectively. This showcases their capabilities to control the value of their assets, privately held. U.S. private equity shareholders are expecting a shining bright future of the said sector during Q3 & Q4, this year.