How COVID-19 Impacts Alternative Fund Operations

COVID-19 has disrupted the alternative assets industry just as it has the rest of the world. Between high market volatility, spooked investors, travel restrictions and rapidly changing government regulation, it certainly is an unusual time to live and to operate in.

How have fund managers changed their operations to respond? Preqin recently surveyed alternative fund managers to see what they are doing differently during the COVID-19 pandemic. The survey included hedge funds, private equity funds, venture capital funds, private debt and real estate investors from around the world.  Here are some key results.

Business Operations

While a small number of respondents (8%) said that COVID-19 significantly sped up their fundraising, showing that top performers are still able to raise money in this environment, more than half of the survey respondents reported a negative impact on total fundraising, opportunities to secure more deals and deal origination as a whole. Travel restrictions, social distancing requirements and economic uncertainty were significant contributing factors.

On the other hand, COVID-19 did not seem to affect day-to-day work nearly as much. The vast majority of funds reported no impact on activities like managing internal business operations, connecting with banks and lawyers to execute contracts, and collecting information from their portfolio companies.

COVID-19 seemed to have a harsher impact on the portfolio companies themselves rather than the funds, as 61% of respondents noticed a negative impact on portfolio company operations.

Investing and Targeted Returns

When it comes to investment strategies, most alternative fund managers plan on riding out the storm. Only 25% of respondents changed their investment strategy due to the pandemic.

There hasn’t been a big motivation to change as 62% of fund managers reported that COVID-19 has not impacted their target returns. For those that expect a change, it’s a pretty even split between those that expect higher returns and those that expect them to be lower.

Recent volatility has created opportunities for certain strategies as some types of funds have done very well compared to the market averages. For example, hedge funds dedicated to CTAs, Relative Value and Macro Value Strategies have generally been outperforming the S&P 500 in 2020.

Long-Term Impact

Looking ahead, fund managers remain optimistic about the future and seem to believe that COVID-19 is only a temporary problem. Only 25% of respondents think it will take more than a year for operations to return to normal and only 2% think it will take over two years.

At the same time, the majority of managers do not think COVID-19 will have a significant negative impact on the long-term industry performance. Whether it is  belief in a future vaccine or that the virus will eventually fade away, fund managers seem confident about the future.

If there is one silver lining to today’s problems, it’s that they have brought many managers closer to their investors. “Relations with existing investors” was the top category where fund managers saw a positive impact from COVID-19. The collective sentiment seems to be that by working together, the industry and the world will get through this crisis.

As always, please contact your Anchin Relationship Partner or Jeffrey Rosenthal at [email protected] with any questions that you may have.