Market braces for 12.6% drop in valuations by Q2 – report

Valuations are expected to drop again to 12.6% on average for the second quarter of this year, when updated portfolio NAVs are released. The Setter Capital report is based on a survey completed by 72 global mangers of alternative investment funds in mid-April 2020.

A total of 94% of those surveyed believe that the market is headed into a recession and that it will last for more than a year; and they also expect that public markets will be down by 12.6% by the end of 2020 compared with the start of the year.

Respondents believe that capital calls will likely increase over the next nine months – but only by 0.7% compared with the previous nine months. Roughly 35% of all capital calls are expected to be used to support existing portfolio holdings, with the rest thought to be tapped for new investments. Debt-related fund managers, however, expect to see capital calls increase by 20% on average.

Distributions are expected to fall by 34.3% on average over the coming three quarters compared to the previous nine months, while fundraising is expected to go down by 18.5% compared with the record levels raised in 2019. Again, debt-related fund managers are more optimistic and expect fundraising to be up by 5%, while venture funds expect a decrease of close to 30%.

Fund managers, across the board, expect an increased need to tap the secondaries market over the next nine months as an alternate source of financing and liquidity. This would include (in decreasing order of transactions expected to be completed by fund managers): the partial or full sale of a portfolio of assets from older funds; replacing defaulting LPs; providing capital to a single asset in exchange for a preferred return; LP tenders; and partial or full sales of single assets.

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