In the strange new reality of the COVID-19 world, one person’s challenge could become someone else’s opportunity. While the crisis has left many businesses facing business continuity issues, wealth managers have found themselves in high demand, fielding calls from private investors who are in a rush to recalibrate their portfolios.
Private wealth and family offices have become unexpected heroes in helping to keep middle market businesses afloat. Their infusion of cash provides the opportunity for struggling businesses to better position them to survive the react and resilience phase from the impact of the global pandemic. For those with private wealth, the current climate provides the opportunity to make investments at values not seen in years.
What is the current climate in terms of private wealth investment?
Even prior to the COVID -19 crisis, private wealth investment had been anticipating a global recession in 2020 favouring a cash position. From 2017 – 2019, the median value of sovereign wealth funds’ investments in private equity was $25M, less than half the median value in 2016. The median equity investment decreased as well - only $50 million in infrastructure and $100 million in real estate. There were several factors for the slowdown, from geopolitical tension to uncertainty about trade policy to a general cooling of the stock market.
When the global pandemic hit, everything changed - everywhere. During the ‘react’ phase’ stimulus packages were introduced to support businesses impacted by the necessary lock-downs. However, as the world has been un-locking in the reactivate phase, stimulus packages and government assistance has begun to be withdrawn, some businesses have found themselves still in a cashflow crisis. In a strange twist of fate, the same private investors whose activity had cooled off in recent years have suddenly found themselves in a position not only to navigate the effects of the crisis, but to also provide a lifeline to businesses in need.
As a business experiences serious issues with cashflow and liquidity, they will be speaking to their banks, their accountants and legal advisers. Those advisers have likely built networks over time, or centres of influence, and often collaborate to help find the right solutions. In this situation, one option is to look for private wealth investment, rather than traditional forms of lending.
And for high net worth individuals with private wealth, the pandemic has meant that now is actually an ideal time to explore new opportunities like these. With particular sectors being hit hard, and banks less likely to loan, private wealth investment can be a timely intervention, in which both parties win.
How has the pandemic affected private wealth investment?
We are seeing a pivot in investment strategies. People are stepping out of their comfort zone, and many private wealth advisers are having conversations about how to diversify their assets based on the current climate.
Ironically, the challenging nature of the current investment environment has opened up previously unexplored avenues. Newer sectors, such as technology services, software, and biotech, have proven to be more attractive to private investors than some of the old guard, such as manufacturing and finances.
The crisis may have given private wealth investors the chance to leverage a previous opportunity that slipped away before. What we have seen is a pivot of investment strategies: people who were once interested in travel and leisure may now be looking at technology stocks. Diversification of assets is obviously a major concern, based on the current climate. This is not really a good time to put all your eggs in one basket.
Additionally, some with private wealth may even come in and take an equity position to help drive the business back to solid ground.
The new way forward
It is hard to say how long the landscape will stay the way it is, but with liquidity being top of mind for everyone. The good news for middle market businesses, is that private investors are still seeking out new opportunities and exploring new sectors – your challenge, may well be their opportunity.