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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.

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