How might analytics tools improve portfolio risk analysis and performance in a more volatile market?
Mauro Pfister - Managing Director, Capital Dynamics
Increased market volatility generally affects the interim valuations of privately held assets and typically results in less acquisitions and exit activity. Those two effects combined may lead private equity fund investors to adjust their commitment activity. However, our research has shown that a consistent long-term planning and investment pace is optimal in terms of risk and return. In developing its sophisticated cash flow and NAV simulation tools, Capital Dynamics made sure they take increased market volatility periods into account. Consequently, our and our clients’ investment activity, which is driven by those models, would not be affected by more volatility in the market.
What are the main risks and opportunities to PE secondaries over the next 12 months?
Mauro Pfister - Managing Director, Capital Dynamics
Given the stage of the business cycle and generally frothy valuations, PE secondary buyers may be tempted to “reach” for lower quality and riskier assets (recaps, concentrated deals, geography, etc). Also, a secondary buyer may struggle to properly price slowing growth (Italy, Germany), the effects of Brexit, monetary policy changes and other factors given the uncertainty of economic development. On the other hand, the current volatility creates opportunity for attractive deals and motivated sellers. Particularly the segment of smaller transactions can offer a secondary buyer more ability to creatively structure transactions, address downside risks and acquire assets outside an auction channel.