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Alternative Market Briefing

Other Voices: Private fund investor defaults: consequences and practical solutions

Thursday, June 11, 2020

Bailey McCann, Opalesque New York:

By: Ted Craig, Jenna Lalji, Dentons

Whilst the true, long-term impact of the worldwide coronavirus pandemic remains to be seen, the global financial markets have already experienced a huge wave of turbulence. The prospect of a significant effect on the closed-ended private funds market is looking increasingly likely, if not already being felt.

Stresses at portfolio level

Whilst private equity fund investments generally have the virtue of being able to withstand short-term economic volatility as assets are held for the long term, operational concerns at portfolio level due to, amongst other things, supply chains being delayed and employers having to contend with employment-related issues (including a duty of care towards employees working remotely) are already apparent. Consumer engagement is down in certain sectors (and, in some cases, prohibited), which is fuelling and further perpetuating many uncertainties and concerns in the market. As a result, many portfolio companies require the support of additional injections of capital.

Stresses at fund level

The global pandemic is also affecting the ordinary course of business at "fund level" in parallel to that of underlying portfolio assets, both in terms of raising capital and sourcing investment opportunities. The current circumstances, including "lockdown" and ongoing "social distancing" measures, are presenting challenges to r......................

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