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AlternativesApril 15, 2020

Most Institutional Investors Are Sticking to Their Private Market Allocations During the Pandemic

A survey by Eaton Partners concludes many institutional investors are keeping their allocations to private assets the same or increasing them.

By Steffan Navedo-Perez

Institutional investors are, for the most part, doing little in the way of dynamic asset allocation with their private market holdings in today’s environment, according to a new survey by Eaton Partners, a placement agent and fund advisory firm.

The majority, or 64%, of the 107 “top institutional investors” canvassed by Eaton said the market disruption will have no effect on their private market asset allocations, so they’ll largely stick to the script. Fifteen percent of respondents said they will increase their allocation to private markets and 21% are mitigating their allocations.

“While we do see LPs [limited partners] committing to GPs already in the process of underwriting, we also expect there will likely be a decrease in overall fundraising activity over the coming months,” noted Jeff Eaton, partner at Eaton Partners. “Private capital fundraising activity typically has lagged the public markets by two-quarters as denominator effect impacts and updated fund valuations take hold.”

There could be some increased appetite for private equity fund managers with a 2018-2019 vintage who are looking to deploy capital. Once the markets settle down from the current volatility, vintage funds will be ideally placed to acquire portfolio companies at the bottom of the pricing curve.

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On the short end of the stick are funds with a vintage year between 2012 and 2017, which are looking to divest their assets. About 60% of Eaton’s survey respondents expressed concern over how many private equity-backed companies will be able to receive financial support from the federal government’s stimulus packages.

These concerns may or may have not contributed to an apparent decline in interest in the sector. Eaton Partners found that the percentage of respondents who found private equity to be the most appealing alternative asset class fell 13 percentage points, from 52% in mid-March to 39% today.

Infrastructure took the lead with the most promise for diversification potential, grabbing the highest allocation of respondents (33%) who said they believe the asset class offers the strongest uncorrelated returns to public equity markets.

New Mexico Businesses Can Apply for Relief from New $100 Million Fund

The relief, managed by private equity firm Sun Mountain Capital, comes from the state’s $5.3 billion severance tax permanent fund.

By Sarah Min

Businesses impacted by the coronavirus in New Mexico can start applying for short-term loans from the $100 million relief program that was created from the state’s permanent fund.

Applications opened Monday through Sun Mountain Capital, the Santa Fe investment firm specializing in private equity, venture capital, and growth equity that was tapped by the state to manage and invest the $100 million New Mexico Recovery Fund.

Credit-worthy companies with 40 or more employees can register for loans between $500,000 and $10 million, the state said. Interest rates are between 3% and 10%. Companies must demonstrate that they plan to retain their workers and spend a majority—upwards of 80%—of their proceeds within the state.

Businesses will be asked to fill out a short questionnaire for approval on the Sun Mountain Capital website before filing a formal submission.

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“The state is looking to do everything we can to help business through this crisis and save jobs,” Economic Development Department Secretary Alicia J. Keyes said in a statement.

The New Mexico Recovery Fund and its guidelines were approved last week by the New Mexico State Investment Council, as well as by Gov. Michelle Lujan Grisham last month, as the state started responding to the COVID-19 pandemic. The state’s coronavirus tally has been creeping upward, standing at 1,345 cases on Monday.

The program is funded from one of the state’s several permanent funds, called the Severance Tax Permanent Fund (STPF), which was created nearly a half-century ago to invest unused resources from oil and gas in the state to issue bonds for infrastructure projects.

Together, the state’s four permanent funds are expected to deliver roughly $1 billion to the state’s general fund this year. The STPF, valued at roughly $5.3 billion in February, would have distributed roughly $234 million this fiscal year on its own.

The emergency business relief fund is intended to work in tandem with other state and federal relief efforts, including the Coronavirus Aid, Relief and Economic Security (CARES) Act and the $25 million relief fund in the state for small businesses.