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Alternative Market Briefing

Private capital braces for economic slowdown

Thursday, January 02, 2020

Bailey McCann, Opalesque New York:

Preparations for a downturn are underway for the private equity and venture capital sectors, according to BDO's inaugural U.S. Private Capital Outlook. As they wait for the other shoe to drop, more than half of fund managers (50% of PE respondents and 54% of VC respondents) say they are being more selective when evaluating highly valued deals.

72% of private equity funds expect an economic downturn within two years. The venture capital industry is slightly more optimistic on timing, with just over half (56%) anticipating a downturn to hit within the next two years. However, that a bear market is coming is a foregone conclusion: 92% of PE and 87% of VC respondents expect a downturn to occur within four years-less than the length of most investment holding periods.

28% of PE respondents will be directing the most capital toward funding portfolio working capital needs over the next 12 months. This is up from less than 1% a year ago, when the vast majority directed the most capital toward new deals. A greater percentage of VC fund managers-41%-will be dedicating the most capital toward portfolio working capital needs.

"We're seeing private equity focus more on building businesses," said Scott Hendon, National Private Equity Industry Group Leader at BDO in an interview with Opalesque. "If there is a slowdown, GPs are looking at how they can optimize businesses and still achieve the growth that investors expect......................

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