The outbreak of COVID-19 pandemic has slowed the world economy. Several businesses have come to a halt. While others are struggling to keep up, a few companies are keeping themselves afloat by taking stringent financial measures. Financial officers across the board are optimistic that the sluggish US economy will be back to normal but there’s no certainty as to when this would happen.
In these distressing times, private equity industry is well -prepared from its experience of the 2008 financial crisis. US private equity firms can support businesses and help the economy get it back on its foot fast.
Private equity industry in the coronavirus pandemic
The U.S is looking at its worst phase in decades. The highest rate of unemployment was 24.9% in the United States during the Great Depression.
James Bullard, President of the Federal Reserve Bank of St. Louis predicted that employment will increase to 30% and GDP will fall by 50%.
In the beginning of 2020, the US economy was strong. Now the tables have turned. Unexpectedly, the economy is at the wrong turn. Many portfolio companies, however, are at high risk and the US economy has slowed. Private equity firms have responded very well to the ongoing pandemic and quick in managing the relapsing economy of the United States. Top private equity firms in the U.S. hold majority of the capital in the private equity market. They can act as purveyors of revival of the market.
Private equity firms are prepared
The economy of a country is severely affected when companies crash down. However, when it comes to private equity firms, the firms are well-prepared for the economic downturn. These firms are prepared with investment strategies that negate the effects of the pandemic.
The US economy has matured and become more resilient over the last decade. The firms have learnt their lesson from the last financial crisis. The increase in operation resources, value creation teams, and better liquidity levels has helped. In brief, the firms have recognized the positive side of the economic slowdown.
The operation teams and experts can be of great help to all the small companies to get them back on track during the coronavirus outbreak. A large number of US private equity firms are masters of operations efficiency.
Better stakeholder management
To be too good to say, but the truth is many private equity firms had anticipated the crisis. To ease investors and address their concerns, private equity firms moved to remote working faster than other industry and created crisis management team that includes vital stakeholders.
Increase in holding period
Private equity firms are forced to keep their assets for a long time. This will have a positive impact on portfolio companies and an overall good impact on the US economy. Not to mention, private equity firms are also looking to keep their valuable assets for a long time. US private firms will try to manage their portfolio companies and hold them longer than their earlier predicted time.
Private equity firms are better placed to endure the economic downturn caused by the COVID-19 pandemic. The industry looks more resilient than ever and firms are deliberate in their approach to investment. As a result, liquidity seems good. Further, due to dislocation, many companies are now looking to invest. The post coronavirus position looks promising for the US private equity firms as they are positive about their willingness to come and invest.
Private equity firms control companies. These firms tend to make changes in their structure, operations, and strategies. Firms further cut cash and manage cash flow. Therefore, private equity firms have a pool of capital to invest and are looking for distressed companies to invest in. Thus, firms have an excellent opportunity to buy companies.