Navigating cash flows and capital at risk during a crisis
September 30, 2020
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Over the past 15 years, steadily falling interest rates have driven yield-hungry allocators to shift trillions of dollars into the private markets. For the LPs managing all those commitments, the coronavirus crisis has caused a number of new strains—including the risk for some overexposed allocators that portfolio holdings could lose significant unrealized value.
Even with months passing since the start of the crisis, the waters are still murky for LPs. Our latest Quantitative Perspectives research looks back to the global financial crisis to present a data-driven picture of what LPs should expect in the months to come in terms of managing cash flows, plus a new framework that can help investors better evaluate their capital at risk. Key takeaways include:
Even with months passing since the start of the crisis, the waters are still murky for LPs. Our latest Quantitative Perspectives research looks back to the global financial crisis to present a data-driven picture of what LPs should expect in the months to come in terms of managing cash flows, plus a new framework that can help investors better evaluate their capital at risk. Key takeaways include:
- LPs should expect capital calls to outpace fund distributions while the crisis persists
- GPs who entered the crisis with much of their capital called down and little in realized distributions may struggle the most
- Preliminary data suggests private fund valuations have fallen materially in 2020 for many vintages
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