Private equity flips its economic defibrillator

With the heart-beat of the global economy stopping in unison on March 2020, the general public, government and financial services industry experienced a cardiac arrest caused by COVID-19, that saw immediate home schooling; stopped airplanes; oil prices plunge and Tik Tok become the new ‘work’. A spectre of death caused sadness and hardship to many, later developing into a two speed economic effect as hotels, restaurants and clothing operations closed putting their workers into government pay schemes with reduced and uncertain salaries, back logs of hospital appointments and death tolls that pushed funeral services beyond their capacity. As this happened, the corporate world converted to WFH and continued in a ‘new normal’ of Zoom calls, experiencing a kind of indigestion that continues but with both sides having to switch to online services as customer demands, no matter the sector, shifted. Is COVID-19 expected to resemble 2008? No, says Jon Kirk, Partner at Redburn who have supplied analysis and paid research to private equity houses for many years and whose minority stakeholder is investment bank Rothschild & Co, “The current situation is very different to the 2008 Global Financial Crisis for a number of reasons including that the financial system is far stronger, allowing it to act as a source of stability this time where it was the heart of the problem back in 2008. Also, policymakers now have a much more comprehensive set of tools for dealing with economic shocks, and they were able to deploy them much more rapidly.

Resilient Markets: Navigating Uncertainty in the COVID-19 Financial Landscape

That has, in turn, meant that financial markets have bounced back faster and the availability of capital, in particular, debt, has also recovered much earlier. That said, in some ways, the ultimate economic impact of the COVID-19 crisis is as uncertain now as it was then.” Ariel Sergio Goekmen-Davidoff, who is a Partner of Lindemann Law in Zurich agrees with this sentiment saying, “I agree the repercussions are as yet unknown. COVID-19 has triggered a man-made crisis and we cannot fathom its extent in consumption yet.” Ogier partner, Richard Daggett, who is Jersey-based adds, “COVID-19 is certainly different. In 2008 the crisis was caused primarily by the financial system itself whereas this is an external crisis that has prevented the financial system from operating normally. there is not the lack of credit seen during the 2008 crash, deals are ready to be done when the time is right. The other big difference we will see from 2008 will be in the timing. In 2008, PE firms, for instance, waited too long before acting and missed some of the double-digit returns that fast movers could have enjoyed. Those lessons have been learnt and the best-placed firms won’t repeat those mistakes. Read more