Historically, private markets investment opportunities have often been boosted by listed markets disruptions. Opportunities have also been created by cyclical downturns in specific industries or geographies. Many of the best private markets investments have been made against backgrounds of downturns or more serious economic disruptions.
Similarly, the advantages of private rather than public funding for businesses are amplified when negative sentiment dominates listed markets. The argument that private funding provides managements with opportunities and time to restructure businesses out of the glare of the public spotlight is never stronger than when listed companies are forced to focus on their share prices. Those advantages are even more pronounced when share prices are spooked rather than buoyed by news of any sort, even news of an interest rate cut, as was the case recently in the US.
But the current situation in which entire supply chains are being disrupted across industries will be damaging for the entire global economy and is already affecting privately owned as well as listed companies. The chances for the V-shaped recovery mooted when Covid-19 first hit the Chinese economy are fast fading. Now, economists are suggesting the virus will result in national economies falling back to low or no growth, as in the immediate aftermath of the global financial crisis more than a decade ago. The consequences are obvious. Overall economic growth will slow. But that is no reason why private capital investment should grind to a halt.
That was the main takeaway from last week’s AVCJ Australia & New Zealand Forum at the Four Seasons Hotel in Sydney. A familiar idiom was recast for the times at the forum. In a discussion on manager selection, one speaker referred to ‘a rising tide lifting all boats’ implying that a falling tide could leave some that were not well positioned on the rocks. The next day another speaker turned the expression around and warned of a ‘falling tide lowering all boats’. The point was that return expectations might have to be lowered across the board.
If that is the case, consensus was that the best course of action will be to accept the state of the market and continue to invest, focusing as ever on areas where change will be likely to generate the strongest opportunities. And, of course, continuing to diversify investments over time as well as industries and stages of development.
Former long-serving Liberal Treasurer Peter Costello put current concerns into perspective in his keynote address.
Investors, he said, should be focusing on taking advantage of 10-40-year trends rather than fixating on short-term concerns such as the Corona virus and record low interest rates. Serious though it might be the Corona virus would pass. And while interest rates might remain low for a few more years they would not still be low in 10 or 15 years, he said.
Key long-term trends that should shape investment decisions were:
- The rise of China to superpower status.
- Ageing of populations in developed countries.
- Climate change.
- Digital disruption.
Digital disruption, he noted, still had a long way to go particularly in re-shaping established industries.
Adrian Herbert
Managing Editor, Australian Private Equity & Venture Capital Journal