Lessons from the Global Financial Crisis
Countries across the developed and emerging world are trying to manage the severe economic short-term impacts of the COVID-19 crisis.
Given the immense uncertainty, it will take much longer to even begin to assess the permanent implications for the world’s populations, companies, and economies. The ultimate effects will, in large part, be dependent on the duration of the crisis, the length and depth of which is currently generating speculations and requires substantial analysis.
Due to the inherent lag in private market reporting, even the initial impact on private markets will take considerable time to fully evaluate. However, the behavior of private markets during the Global Financial Crisis (GFC) may provide some insight into the potential short-term and long-term expectations of private markets in the current crisis. The historical results presented in the paper show that while some funds were negatively impacted by the GFC, others may have benefited based on their respective vintage. In this paper we examine how private market fund managers reacted to a similarly unexpected and profound crisis which began in 2008.
Some of the takeaways from the GFC were that it led to:
- A decline in exit
- A decline in deal flow
- Lower internal rates of return
- Attractive returns for post-GFC vintages
- Ripple effects across vintages for years after the crisis
This paper analyzes Mercer's experience from the GFC, observations to-date on COVID’s impact and it also suggests key considerations for private equity investors.
