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Alternative Market Briefing

Other Voices: Will COVID-19 ignite private equity's dry powder?

Monday, August 03, 2020

By: Bryan Haynes, Ian Michael, Byron Tse

The COVID-19 pandemic has pushed global financial markets into a prolonged period of volatility and uncertainty (see our article on the impact of COVID-19 on M&A deal flow), reminiscent of the 2007-08 financial crisis. Many businesses have languished since March. Private equity professionals are optimistic for the industry to adapt and play a meaningful role in a global economic recovery.

Takeaways

Private equity firms are sitting on a highly concentrated source of capital available for deployment given fruitful fundraising efforts in recent years. The pandemic has spawned a number of potential investment opportunities from: (a) assisting existing portfolio businesses; (b) investing in emerging industries that have thrived in light of the current economic conditions; and (c) purchasing distressed assets or providing businesses with additional capital.

Powder Reserves

Generally speaking, liquidity becomes a primary concern during market turmoil as financial institutions begin to retreat from their traditional role as market makers for bonds and financial assets. The "Big Five" banks of Canada have recently announced billions set aside during the second quarter of 2020 as loan loss provisions, concentrating on helping existing borrowers avoid default instead of extending further credit. The Bank of Canada has established a number of asset purchase programs to help increase liquidity in core fundin......................

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