Wednesday 11 November 2020 6:00 am

Appetite for hard-to-access capital is driving City investors to private equity

With governments introducing unparalleled fiscal stimulus to support the economic recovery from ongoing pandemic, and monetary policy signalling a much lower-for-longer interest rate environment than anticipated, investors are increasingly turning to private equity as they look for yield.

The investment space has been an uptick in interest from City investors as businesses are thirsty for fresh capital, while banks are reluctant to finance new projects given the current economic conditions, according to Deborah Botwood Smith, chief executive of industry group LPeC.

“Small and medium sized businesses battle the implications of the pandemic, and retail investors are forced to look beyond the blue-chips for earnings growth,” Botwood Smith told City A.M.

She pointed out that the value of global private equity assets has increased seven-fold in the last twenty years, to roughly £3.1trn as investors sit on record profits, at least on paper.

In the UK, the listed private equity market is now worth a combined £25.2bn by market value, rising from £8.2bn in 2010 to £25.2bn by the end of 2019.

“The world is awash with liquidity, thanks to central bank action, but these vast pools of capital are often hard to access for many companies too small for, or otherwise unsuited to, public markets,” Botwood Smith said.

“A shortage of capital, either as loans or equity, restricts their ability to expand, deliver returns to their shareholders and contribute to the growth in GDP and employment,” she concluded.