There’s no way to determine how much damage COVID-19 will do to the global economy, but history offers some insight into what the crisis will mean for the PE industry.
By Hugh MacArthur, Graham Elton, and Brenda Rainey April 09, 2020
How will the coronavirus crisis affect the private equity industry? The only honest answer is that nobody really knows.
As a healthcare crisis, it is unprecedented in its global sweep and impact. As an economic event, it raises many unknowns about how the sudden demand shock and existential dread will affect business activity and consumer behavior—especially if the lockdown persists for an extended time.
Yet a close look at the impact of previous economic shocks can provide some clues as to how PE funds and their limited partners (LPs) will behave in a period of rapid contraction. With that in mind, we broke down how the 2008–09 global financial crisis affected industry activity and then looked at what’s different this time around that might lead to different outcomes for dealmaking, exits, fund-raising, and returns.
There’s little doubt that the PE industry will quickly retreat from a remarkable decade of growth and superior performance. But history and current conditions suggest that funds won’t sit still for long.