By Jacolene Otto, Head of Private Equity & Real Estate, Maitland
While the COVID-19 pandemic has dented economies badly, downturns always reveal pockets of investment opportunity. One of these is private equity which is currently sitting on mountains of dry powder – an estimated $2.5 trillion (at December 2019) according to Bain & Co.
This extent of dry powder points to vast opportunities that are likely to open up in the coming years, especially as governments and the private sector seek to boost economic growth through infrastructure projects. Another major current and future investment trend is into technology where private equity is also able to unlock opportunities.
How will GPs and LPs change to the new normal?
There are likely to be some changes in the way GPs and LPs interact and collaborate. LPs can see there are opportunities and they will need GPs to demonstrate how they are planning to take advantage of these opportunities. There will likely be increased communication between GPs and LPs with each trying to understand the other’s perspectives so that they can collaborate to the benefit of investors.
There will also be stronger communication between GPs and portfolio companies. Portfolio companies need to reveal their strategies and processes in more detail in order for GPs to understand the potential risks before allocating capital and resources to help mitigate these risks.
The largest asset allocators in the private equity industry are institutional investors such pension funds and development finance institutions who invest in private equity knowing it is a long-term play. As LPs, they will be looking at how their GPs have responded to the crisis and adjusted to manage risk. Asset classes will be impacted to varying degrees by the pandemic – LPs are focusing on how GPs are responding to this and helping their portfolio companies to stabilise throughout the pandemic.
In short, a positive outcome from the bleak COVID-19 landscape is that communication and transparency in the private equity sector will improve, which can only bode well once dry powder starts being used.
Investment trend to ESG
ESG his nothing new to the private equity industry, with allocators such as development finance institutions allocating millions to ESG investments. But what is now clear is that ESG is no longer a tick-box exercise in the due diligence process. Daily, the investment media write about a changed world post-COVID-19, a more caring world where precious resources are safeguarded, and communities helped through infrastructure investment and a concomitant focus on governance.
And so, there is likely to be a greater focus on understanding ESG factors, particularly governance and the impacts on underlying portfolio companies, regardless of whether a fund has an ESG focus.
Work from home – has it hindered private equity?
Enhanced Business Continuity Plans (BCP), forcing firms to identify weaknesses and tackle issues head on. Key service providers have been subjected to even more stringent oversight. For example, do firms understand the BCP plan of their administrator and how that impacts their business and the service they receive?
Technology of course has come to the fore with virtual meetings enabling more or less business as usual – and making business more efficient as the need for travel is obviated. Indeed, fund raising and deal making have continued with GPs, LPs and portfolio companies adapting quickly to continue meeting prospective investors and investments virtually.
Managers are continuing to complete transactions remotely. Board meetings, due diligence and document signing are all being done remotely and while this will return to some normality after lockdown, it should help to streamline certain processes.
In sum, private equity appears not only to be adapting well to the new circumstances, but changes have led to positive behavioural trends and the industry will truly take off again once that mountain of dry powder starts to be catalysed.
Dollar edges lower as investors favor higher-risk currencies
By Stephen Culp
NEW YORK (Reuters) – The dollar lost ground on Friday as market participants favored currencies associated with risk-on sentiment over the safe-haven greenback.
Risk appetite was stoked by better-than-expected economic data and expectations that U.S. President Joe Biden’s proposed $1.9 trillion coronavirus relief package will come to fruition.
“The dollar’s down against other currencies but not by a whole lot,” said Oliver Pursche, president of Bronson Meadows Capital Management in Fairfield, Connecticut. “I expect the dollar to be where it is now at the end of the year, and the main reason for that is while I see some signs of improvement in the economy, monetary policy is going to stay where it is.”
“I don’t think the dollar is underpriced or overpriced,” Pursche added.
For the week, the dollar slid about 0.2% against a basket of world currencies, the euro was essentially flat, and the yen lost more than 0.5%. But the British pound advanced more than 1.1% against the dollar, its best week since mid-December.
Bitcoin continues soar to record highs. The world’s largest cryptocurrency was last up 6.6% at $54,961.67, hitting $1 trillion in market capitalization.
Its smaller rival, ethereum, was last up 0.7% at $1,953.28.
The digital currencies have gained about 89% and 1,420%, respectively, year to date, leading some analysts to warn of a speculative bubble.
“One concern I’ve always had (about cryptocurrencies) is how susceptible they are to manipulation,” Pursche said. “But they’re going to continue to gain legitimacy.”
“While it’s great that Tesla made an investment in bitcoin, I’m more intrigued by Blackrock and other major investment firms taking a hard look at cryptocurrencies as a viable investment.”
The Australian dollar, which is closely linked to commodity prices and the outlook for global growth, was last up 1.21% at $0.7863, touching its highest since March 2018.
The New Zealand dollar also gained, closing in on a more than two-year high, and the Canadian dollar advanced as well.
Sterling, which often benefits from increased risk appetite, rose to an almost three-year high amid Britain’s aggressive vaccination program. It had last gained 0.27% to $1.40.
The euro showed little reaction to a slowdown in factory activity indicated by purchasing manager index data, rising 0.21% to $1.2116.
The yen, gained ground against the dollar and was last at 105.495, creeping above its 200-day moving average for the first time in three days.
(Reporting by Stephen Culp, additonal reporting by Tommy Wilkes; editing by Jonathan Oatis)
Shares rise as cyclical stocks provide support; yields climb
By Saqib Iqbal Ahmed
NEW YORK (Reuters) – A gauge of global equity markets snapped a 3-day losing streak to edge higher on Friday, as the recent selling pressure on high-flying big technology-related stocks eased even as investors showed a preference for economically sensitive cyclical sectors.
Oil prices fell from recent highs as Texas energy companies began preparations to restart oil and gas fields shuttered by freezing weather, while the U.S. Treasury yields extended their recent rise.
The MSCI’s global stock index was up 0.47% at 681.88, after losing ground for three consecutive sessions.
On Wall Street, stocks steadied as cyclical sectors edged higher while tech names made modest advances after concerns about elevated valuations led to some selling in recent sessions.
“What we saw (this week) represents a market that is tired and may not do very much. So we are headed for some sort of a pullback, but I don’t think we’re there just yet,” said Peter Cardillo, chief market economist at Spartan Capital Securities in New York.
“Investors are not really pulling out of the market, but they are becoming more cautious. It already has factored in another good positive earnings season.”
The Dow Jones Industrial Average rose 119.97 points, or 0.38%, to 31,613.31, the S&P 500 gained 12.93 points, or 0.33%, to 3,926.9 and the Nasdaq Composite added 92.58 points, or 0.67%, to 13,957.93.
The S&P 500 technology and communication services sectors, housing high-value growth stocks, were among the smallest gainers in early trading, while financials, industrials, energy and materials rose more than 1%.
European shares edged higher on Friday as an upbeat earnings report from Hermes boosted confidence in a broader economic recovery. The pan-European STOXX 600 index was 0.64% higher.
U.S. Treasury yields on the longer end of the curve rose to new one-year highs on Friday as improved risk appetite boosted Wall Street, while the yield on 30-year inflation-protected securities (TIPS) turned positive for the first time since June.
Core bond yields have pushed higher globally, led by the so-called reflation trade, where investors wager on a pick-up in growth and inflation. Growing momentum for coronavirus vaccine programs and hopes of massive fiscal spending under U.S. President Joe Biden have spurred reflation trades.
The benchmark 10-year yield was last up 5.1 basis points at 1.338%, its highest level since Feb. 26, 2020.
Oil prices retreated from recent highs for a second day on Friday as Texas energy companies began preparations to restart oil and gas fields shuttered by freezing weather.
Unusually cold weather in Texas and the Plains states curtailed up to 4 million barrels per day (bpd) of crude oil production and 21 billion cubic feet of natural gas, analysts estimated.
Brent crude futures were down 28 cents, or 0.44%, at $63.65 a barrel, while U.S. West Texas Intermediate (WTI) crude futures fell 66 cents, or 1.09%, to $59.86.
Copper jumped to its highest in more than nine years on Friday and towards a third straight weekly gain as tight supplies and bullish sentiment towards base metals continued after the Chinese New Year.
Spot gold XAU= was down 0.58% at $1,785.71 an ounce.
The dollar lost ground on Friday, extending Thursday’s decline as improved risk appetite sapped demand for the safe-haven currency and drew buyers to riskier, higher-yielding currencies. The dollar index was off 0.295%.
Bitcoin hit yet another record high on Friday, hitting a market capitalization of $1 trillion, blithely shrugging off analyst warnings that it is an “economic side show” and a poor hedge against a fall in stock prices.
(Reporting by Saqib Iqbal Ahmed; Editing by Nick Zieminski)
Oil falls after surging past $65 on Texas freeze
By Stephanie Kelly
NEW YORK (Reuters) – Oil prices fell on Thursday despite a sharp drop in U.S. crude inventories, as market participants took profits following days of buying spurred by a cold snap in the largest U.S. energy-producing state.
Brent crude fell 41 cents, or 0.6%, to settle at $63.93 a barrel. During the session it rose as high as $65.52, its highest since January 2020.
U.S. West Texas Intermediate (WTI) crude futures fell 62 cents, or 1%, to settle at $60.52 a barrel, after earlier reaching $62.26, the highest since January 2020.
Brent had gained for four straight sessions before Thursday, while WTI had risen for three.
“The market probably got a little bit ahead of itself,” said Phil Flynn, a senior analyst at Price Futures Group in Chicago. “But make no mistake, this selloff in oil doesn’t solve the problems. The problems are going to persist.”
Though some Texas households had power restored on Thursday, the state entered its sixth day of a cold freeze. It has grappled with refining outages and oil and gas shut-ins that rippled beyond its border into Mexico.
The weather has shut in about one-fifth of the nation’s refining capacity and closed oil and natural gas production across the state.
“The temporary outage will help to accelerate U.S. oil inventories down towards the five-year average quicker than expected,” SEB chief commodities analyst Bjarne Schieldrop said.
Prices dropped despite a decrease in U.S. oil inventories. Crude stockpiles fell by 7.3 million barrels in the week to Feb. 12, the Energy Information Administration said on Thursday, compared with analysts’ expectations for an decrease of 2.4 million barrels.
Crude exports rose to 3.9 million barrels per day, the highest since March, EIA said.
“The big nugget was the big jump in exports of crude oil,” said John Kilduff, partner at Again Capital in New York. “We’ll have to see what happens with that next week weather in Texas, but I have been looking for a pickup there for a while.”
Oil’s rally in recent months has also been supported by a tightening of global supplies, due largely to production cuts from the Organization of the Petroleum Exporting Countries (OPEC) and allied producers in the OPEC+ grouping, which includes Russia.
OPEC+ sources told Reuters the group’s producers are likely to ease curbs on supply after April given the recovery in prices.
(Additional reporting by Yuka Obayashi in Tokyo; editing by Emelia Sithole-Matarise, Steve Orlofsky, David Gregorio and Jonathan Oatis)
SoftBank Vision Fund set for new portfolio champion with Coupang IPO
By Sam Nussey and Joyce Lee TOKYO/SEOUL (Reuters) – SoftBank’s $100 billion Vision Fund is poised to have a new...
Five things to look out for in HSBC strategy update
By Alun John HONG KONG (Reuters) – HSBC Holdings PLC will update its “transformation” plan announced a year ago on...
Boeing recommends airlines suspend use of some 777s after United incident
By Jamie Freed and David Shepardson (Reuters) – Boeing Co said it recommended suspending the use of 777 jets with...
Shares turn cautious as bond yields, commodities surge
By Wayne Cole SYDNEY (Reuters) – Asian shares turned mixed on Monday as expectations for faster economic growth and inflation...
Oil gains as U.S. production slowly returns after freeze
TOKYO (Reuters) – Oil prices rose on Monday as the slow return of U.S. crude output that was cut by...
Global dividend payouts forecast to revive in 2021
By Joice Alves LONDON (Reuters) – Global dividend payments could rebound by as much as 5% this year, a new...
UK firms report strongest hiring intentions in a year – CIPD
LONDON (Reuters) – British businesses have the strongest hiring intentions in a year and fewer are planning to make redundancies...
Former Bank of England Governor Carney joins board of digital payments company Stripe
By Kanishka Singh (Reuters) – Mark Carney, former head of the UK and Canadian central banks, has joined the board...
Airbus CEO urges trade war ceasefire, easing of COVID travel bans
By Tim Hepher PARIS (Reuters) – The head of European planemaker Airbus called on Saturday for a “ceasefire” in a...
Why a predictable cold snap crippled the Texas power grid
By Tim McLaughlin and Stephanie Kelly (Reuters) – As Texans cranked up their heaters early Monday to combat plunging temperatures,...