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Banking

Investec survey shows private equity relying more on private debt

Private debt funds have plenty of dry powder to deploy. As they lend more to sponsors and to non-sponsor owned companies, banks must respond.

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In July, Investec released its latest GP Trends survey based on responses from 219 private equity professionals, mostly based in the UK, North America and mainland Europe, with 11% in the rest of the world.

It confirms the optimism evident in record-breaking deal activity.

“Private equity had raised a lot of money and was behind the curve in deploying it,” says Jonathan Arrowsmith, co-head of private equity at Investec. “Funds started to invest in the second half of 2020, and that dynamic is still very much in play.”

Fully 97% of respondents expect returns from investments made this year to exceed or at least match those made in 2020. This optimism comes even when prices are a lot higher. Competition to buy assets is intensifying, including from public market investors in IPOs, special purpose acquisition companies (Spacs) and industry consolidators.

Arrowsmith says: “Covid has separated the wheat from the chaff among targets. There has always been a premium for growth: now there is also a premium for resilience. Businesses that were able to change business practices and adapt to Covid are seen as very good bets. And if they were also able to grow, then so much the better.”

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