By Hamlin Lovell, NordicInvestor

Liquid assets have become much more volatile since March 2020. With illiquids, the story varies more according to whether, when and by how much managers have changed valuations. It also varies by asset class….

Private Equity

The world’s largest private equity manager, Blackstone, reported 21.6% declines in the value of its private equity portfolios in the first quarter of 2020.

The largest private equity firm in both Sweden – and in fact Europe – EQT Partners, which runs c. EUR 40 billion, reported a smaller drop, of only 5%. EQT argued that, “given our thematic approach, the portfolio remains relatively robust”. Some of EQT’s investee companies are in healthcare and technology, and many of them are supporting the Covid-19 response in various ways such as through making face masks.

Indeed, some companies that may benefit from Covid-19. EQT Partners was reportedly contemplating paying a higher price for hygiene products maker, Schulke & Mayr, due to Covid 19.

But overall, valuations are likely to be lower, because some firms’ revenue and profits will fall, and the uncertainties ahead warrant a higher risk premium. Valuations can be estimated partly with reference to public equity and credit markets, which have fallen somewhat.

But one widely used valuation methodology may need to take a back seat: “it may no longer be appropriate for recent transaction prices, especially those from before the expansion of the pandemic to receive significant, if any, weight in determining fair value”, points out The British Venture Capital Association (BVCA) in its special valuation guidance. Equally, the report says there is no need to write assets down to a panic sale price: “Fair value does not equal a “fire sale” price.”

Many funds will only get independent input on valuations, from valuation agents or auditors, once a year, so we may need to wait until early 2021 to get a clearer picture.

Real estate

Incomes from property have naturally been hard hit by rent holidays and closures of offices, hotels and restaurants. Private debt lending to these industries might eventually risk default. Conversely, warehouses may even benefit from more e-commerce replacing shopping, increasing demand for logistics assets.

Overall, year to date unlisted commercial property has seen declines in value comparable to previous market panics. The UK commercial property market is an important one for many pension funds in the Nordics. CBRE’s United Kingdom Monthly Index was only down 3.6% for 2020 to April. Most of this has come from the retail sector, with offices and industrial seeing smaller declines. However, to put this into perspective, commercial property is not a very volatile asset class. The declines seen in 2020 are the deepest since the UK’s Brexit vote of 2016, and the Great Financial Crisis of 2008, which saw declines of 3.3% and 2.8%, respectively.

In Sweden, it is not clear whether there is enough data to get a firm handle on valuations. Cushman and Wakefield say “real estate transactions are mostly on hold” but did mention some off-market deals in public properties, residential real estate and logistics.

Longer term, there could be headwinds. If no vaccine is found, offices might require lower occupancy to cope with social distancing, and there could also be higher costs for daily intensive deep cleaning routines. Another negative scenario is that the trend towards working from home could continue and accelerate – even if a vaccine is found. Twitter is one example of a company that will now let its staff work from home indefinitely. Property values recovered quickly from the GFC, but if the GCC leads to permanent changes in behaviour, some valuations may never recover.


In infrastructure investing, there is a wide range of possibilities, and KPMG UK Infrastructure Valuations encourages investors who might normally carry out annual valuations, to consider a quarterly valuation.

KPMG points out that “Demand-based assets are most at risk from a downward value adjustment, particularly those investments exposed to the travel sector (e.g., airports) and those directly correlated with GDP performance (e.g., ports)”.

Where social distancing reduces capacity on public transport, Governments may need to step in: the UK Government is now taking profit and loss risk for train operators for at least 6 months. If business models are no longer viable with fewer passengers, there may be a risk of nationalisation at some stage, even under the UK’s Conservative Government: it has already nationalised two railway franchises, before the Coronavirus crisis started.

The UK has now left the EU, but it is worth pointing out that the EU has relaxed its usual “state aid” rules, which can normally make it difficult for Governments to subsidise or nationalise private companies. It is too early to predict whether Government intervention could be investor friendly, or might lead to assets being acquired below current valuations.

Conversely, KPMG points out some sectors could be much more resilient: “availability based or regulated assets are expected to be more stable at a revenue level, unless broader economic pressures force changes to contractual mechanisms”. Telecoms, water, healthcare, and related assets may see little or no impact and some assets might see increased demand. If working from home raises demand for data bandwidth, then assets such as telecom towers that are rolling out 5G networks could even be worth more, as could data centres. (Data centres can come under the umbrella of either “infrastructure” or “real estate” assets).

Indeed, several infrastructure companies listed on the LSE (INPP, JLEN) have put out statements saying they see no material impact from COVID-19.


Investors should not give up on private assets. A February 2019 report from Cambridge Associates said that “Cambridge Associates’ past analysis indicates that endowments and foundations in the top quartile of performance had one thing in common: a minimum allocation of 15% to private investments”. 

The silver lining in the cloud is that investors in private equity can now “double down” at much lower valuations. Another research paper from Cambridge Associates found that venture funds launched in the decade before the 2008 crisis had an average IRR of 6.3%.  For the funds that launched after the crisis, the average IRR was 18.2%: nearly three times higher.

Now could be the ideal time to buy into private equity and venture capital, at a discount. Private equity funds already have record “dry powder” of USD 2.5 trillion of capital they can draw down from investors – though in some cases if investors receive lower distributions they may have difficulty meeting capital calls. Investors who do have the cash available can now deploy it at lower equity valuations, but also probably with a smaller amount of more expensive debt.

Government spending and stimulus programs could also boost some infrastructure projects where the government works in partnership with the private sector.

The crisis has intensified interest in ESG, and ESG investors may also focus their efforts towards Coronavirus solutions. Sweden’s Norrsken Foundation runs a EUR 100 million Impact Investing venture capital fund, and has offered grants of up to EUR 1 million under its “Action Against Corona” initiative.