How Fund Managers Are Responding to COVID-19

Fund managers are polarized on the long-term impact, but business operations have taken a hit for most

Although fundraising is slowing in the wake of the economic fallout from COVID-19, most alternatives fund managers appear to be staying the course. Preqin surveyed more than 180 fund managers* in April to understand the impact of the outbreak on their strategy and operations. Three-quarters do not plan to change their investment strategy for any active funds as a result of the outbreak. What’s more, a significant 90% of managers told us they do not plan to change their valuation method for portfolio companies, either.

Long-Term Impact Is Unclear
Why are fund managers not taking action amid the disruption? A viable reason could be that they remain unsure whether the market turmoil caused by COVID-19 will have a lasting impact. Indeed, 62% of surveyed fund managers believe their targeted returns will be unaffected, while 16% told us that targeted returns will be “slightly lowered” as a result of the virus.

We asked fund managers their views on the possible long-term impact. One manager said it depends on the duration of the virus: “If it will be over in a few months, companies could be able to recover a big part of the loss.” They also felt that “if it will last more than six months, many companies could face long-term issues.”

As the chart above shows, the largest proportion (38%) of surveyed fund managers believe that COVID-19 will have a “slight negative impact” on the alternatives industry. But the chart also demonstrates the significant differences in outlook: an equal share (11%) of respondents believe that COVID-19 will have either a “significant positive impact” or a “significant negative impact.” Altogether, it suggests that fund managers do not yet have enough clarity on the long-term impact of the virus on the alternative assets industry.

Business Operations Are Disrupted
Where fund managers are aligned is the effect of the virus on their business operations. Travel restrictions and social distancing measures have been implemented by governments around the world since the outbreak began. Sixty-nine percent of fund managers told us that their respective business operations have been negatively impacted as a result.

While our survey reveals that not all business activities have been affected, several key operations have been adversely impacted. The largest proportions of managers said that fundraising from potential investors (69%), operations at portfolio companies (61%), and deal origination (59%) have been negatively affected.

That said, a significant 74% of managers believe that business operations will return to their pre-COVID-19 state within 12 months. And only 3% believe the effect on operations will last beyond two years.

To view the full set of results from our April 2020 survey of alternatives fund managers, download the data pack.

In our next article we analyze how investors are responding to the COVID-19 crisis. 

*Fund managers operating across seven alternative asset classes participated in our April 2020 survey. Forty-one percent of fund managers were active in private equity, the largest share. Twenty-one percent managed venture capital funds, with the same proportion offering a private debt vehicle. Nearly one-third (30%) were active in real estate, followed by 20% and 4% operating an infrastructure or natural resources strategy respectively. Twenty percent of fund managers operated a hedge fund strategy.