Limited partners (LPs) could shift their focus to secondary and distressed debt investments in the coming two years, as the coronavirus pandemic has created opportunities in these areas.
The market is in “an early stage of prolonged distress, which is a debt-buying period for heavily-hit industries like travel, hospitality, energy, and also for some moderately-hit ones like servicing and manufacturing,” said Brenda Lau, head of Asset Management Asia at Indosuez Wealth Management, in an interview with DealStreetAsia.
The Asia-focused executive at Indosuez, the global wealth management brand of France-based cooperative financial institution Crédit Agricole Group, is more upbeat on the deal-making prospect in the secondary market.
“We thought opportunities in secondaries would come quicker,” said Lau, drawing on a historical analogy of the 2008 financial crisis when institutional investors were forced to sell their private equity portfolios in the secondary market due to ‘the denominator effect’ — giving away lucrative assets to investors who had managed to continue investing.
According to a survey published by global advisory firm Probitas Partners in May 2020, secondary investments and distressed debt opportunities are the only two alternative asset classes in which interest grew compared to 2019. These opportunities will potentially persist in 2021 as well, said Lau. “It’s just a matter of whether you can scoop [up deals] during this period at a low and attractive price.”
Indosuez Wealth Management has 3,150 employees across 14 countries in regions including Europe, Asia-Pacific, the Middle East, and the Americas. The firm had 130 billion euro ($154 billion) in assets under management (AUM) as of June 30, 2019, according to its website.
Edited excerpts of the interview with Lau: