Private market investors are turning defensive.

Investors are riding out the coronavirus outbreak with a wait-and-see stance, but a significant portion of them already are expecting to scale back their bets this year, according to a survey by PitchBook.

The survey, conducted on March 31 and April 1, provides an early glimpse into how the vast economic turmoil caused by the pandemic may be shaping the outlook of limited partners and investors at venture capital or private equity firms.

Answers provided by the survey's 383 respondents suggest that investors in the private markets are becoming more conservative even as they try to gauge the impact of the global health emergency. Because there are still big question marks about the duration of large-scale shutdowns of businesses across the board, many investors seem hesitant or unable to reset plans at this point.
Limited partners, however, have begun to hit the pause button. Asked about their firm's future allocations to the private markets, about 29% of LP respondents said they would suspend commitments over the coming six months.

More than 20% said they expect to cut their allocation by at least 1%, and a majority of that group said their allocation would fall by more than 10%.

By contrast, 37% of LPs said they foresee no change in their existing fund allocation to the private markets and around 14% even plan to raise their commitments.

Hilary Wiek, a PitchBook senior analyst and former investment manager for institutional investors, said that some LPs may expect to lower their commitments because they're anticipating a slower investment pace by general partners at VC and PE funds.

But for most large investors, Wiek added, it's too early for them to tell how much, if at all, they'll need to revise their plans for the year ahead. Moreover, investment committees who steer such decisions are unlikely to meet and weigh such matters until late April at the soonest, she said.

Many institutional investors, mindful of their asset-allocation mandates, may decide to reduce new private-market commitments as part of a rebalancing of their portfolios to reflect steep markdowns of their equities and other public-market assets.

Among general partners in venture capital and private equity, the outlook is slightly gloomier, reinforcing the notion of a pullback looming.

When asked about their projected investing for the coming year, more than 35% of GPs said they expect their total capital deployment to fall by at least 10%. About 12% said investments would drop by up to 10%.

Those views showed roughly similar contours among GPs of both venture and PE firms.

About 28% said they expect to increase their investment pace, with the majority of that group forecasting a rise of more than 10%. Roughly 24% of GPs said they see no change as of now.

On fundraising, investors said the process could be hampered significantly during shutdowns that have curtailed movement and forced partners to conduct meetings by phone or video conferencing. Among all respondents, a majority said travel restrictions are a large or medium impediment to raising capital.

However, some GPs and LPs took different positions on the question. At venture capital firms, 32% of GPs said the travel restrictions are a large impediment to fundraising while only 22% of LPs shared that view. About 25% of GPs of PE firms considered it a large obstacle.

About 38% all respondents said travel restrictions pose little or no impediment.

Featured photo via Eduardo Munoz Alvarez/Getty Images

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