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Pulling off private equity in a pandemic

By Lachlan Maddock
 — 1 minute read

For MLC AM chief investment officer Jonathan Armitage, COVID-19 presented challenges and opportunities in equal measure.

MLC AM’s Private Equity Fund III had its first close with $140 million in committed capital at the end of October, but conversations around the fund began in late 2019 – shortly before COVID-19 emerged in the city of Wuhan, China. 

With international travel quickly halted, chief investment officer Mr Armitage told InvestorDaily that it was “fortuitous” that Zoom was one of the companies that already sat within MLC AM’s investment portfolios as the raising process went entirely online, allowing conversations with clients to continue even as domestic and international borders slammed shut.

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“When you see dislocations, whether or not it’s in financial markets or economies, they tend to accelerate the adoption of technologies or working practices that were already present. We’ve absolutely seen that in the last nine or 10 months or so,” he said.

But while software has been a key enabler of the raising process for Fund III, Mr Armitage doesn’t believe it’s the future of business. 

“There’s no doubt that we’ve all become comfortable using Zoom technology or any of the other offerings around in the marketplace…but I don’t think it’s going to completely remove the desire for people to interact face-to-face. I think that’s a key tenet of human nature,” Mr Armitage said.

The new normal of COVID-19 also meant leaning on MLC’s relationships within the adviser space as it brought new clients into the fold at a time when face-to-face interactions were basically off-limits. About 30 per cent of investors who have joined Fund III are new to MLC – a “huge kudos” to the investment team. 

“Our funds have always been very global in nature and very diversified,” Mr Armitage said. 

“I think that’s been one of the key attractions to investors coming into this, and it’s a key part of the differentiation that clients like. You’re giving your investors real breadth that you can’t get in listed equity markets. That’s not going to change because of the pandemic.”

Private assets perform well through downturns – something Mr Armitage puts down to the businesses being less complex and more in touch with their end consumer – and while nobody at MLC AM predicted the pandemic, they scrutinised the economic cycle and stress-tested the returns they might get in a downturn. 

“That has meant that the investments we’ve already made have been pretty robust in the face of a very challenging economic backdrop. But that’s partly because we felt that, at some stage in the period during which we owned these assets, that we would be faced with an economic downturn of some form or another,” he said.

“We saw that in 2008 and 2009 and we’ve seen that again in the early part of this year. Companies adapt, management teams adapt…but I think that’s one of the reasons why private equity returns can continue to be pretty robust during times of economic challenge.”

 

 

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Pulling off private equity in a pandemic
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