Eaton Partners’ latest LP Pulse Survey questioned 69 leading limited partners over the past two weeks on their insight with regards to the impact and concerns about COVID-19.
About 70% of respondents said that the outbreak is having an effect on their daily investment-related operations, including current trade executions and forecasting investments, and pacing plans for the remainder of the year. Those activities are being impacted by externalities in market valuations (29% of respondents say), with the coronavirus (29%) and a potential US recession (33%) rounding out the heavily weighted answers with regards to speculation on what will affect markets most severely.
The survey also found varying levels of confidence in the US government’s capability to contain and eradicate the spread of the virus. While 13% are very confident in the government’s ability, 49% are somewhat confident, and 38% are not confident at all.
More than three-quarters (78%) of respondents said these concerns don’t influence their participation in the market and said they will maintain their holdings without reducing allocations to specific regions because of the virus.
The majority (70%) of respondents said that the federal government’s decision to cut interest rates from 1.0%–1.25% to 0.0%–0.25% was “not an appropriate remedy to the coronavirus crisis because the problem is biological, not financial, in nature,” Eaton Partners said.
Opportunities and shortfalls are surrounding the coronavirus outbreak. Leuthold Group strategist Scott Opsal identified 148 shares of 4% yielding securities that materialized in the wake of COVID-19’s influence. The alternative assets industry, according to data provider Preqin, grows in unmitigated fashion as investors seek to capitalize on opportunistic returns in relatively shaky markets.
“There’s a general feeling that private equity could be a well-positioned, steady-hand investor during the recent coronavirus-induced volatility. In fact, our survey found that 52% of investors believe PE is the most appealing alternative asset class going forward, on the heels of lower interest rates, falling valuations, and more clarity in the presidential race,” Eaton Partners’ Peter Martenson said.
IHS Markit is predicting a material risk of the economy grinding into a recession by the second quarter of this year and lasting until the end of the year. In the year’s second period, the drop in gross domestic product (GDP) will total 5.4% annualized, the firm’s chief US economist, Joel Prakken, wrote in a report. Such a negative forecast “doesn’t feel like a stretch,” he argued.