As a co-founder and Managing Partner at 747 Capital in New York City, Marc der Kinderen has seen the U.S. Private Equity market grow since 1994. We recently spoke with Marc about the No. 1 lesson he learned about PE during the pandemic, as well as what he thinks will be different for PE this year and the importance of ESG to PE managers below.

Marc joined JTC Americas’ Private Equity 2021: Trends, Future Outlook and More with Industry Experts webinar on Wednesday, March 3rd, where we also had a live Q&A session with Marc and the other panelists.

What is the No. 1 lesson you learned about Private Equity during a pandemic?

We learned an old lesson again: diversification is key in portfolio construction. We spent many resources constructing solid portfolios and avoided risks such as startups or highly leveraged deals. As a result of being diversified in over 100 companies in many industries during COVID-19, this strategy protected us when unexpectedly complete sectors were challenged. While hospitality and event management were hit, we had upside in technology, direct to consumer and other segments to more than offset the challenges.

How important is ESG to PE Fund managers?

Considering ESG criteria is becoming a “must” have rather than a “nice” to have in asset management. All segments of investor clients, from pension funds to high-net-worth individuals nowadays require asset managers to consider sustainable business models and ESG criteria when allocating capital. It’s about public perception and reputation but more importantly: applying ESG criteria to investment selection is about avoiding non-financial risks like environmental damage that may materially impact the value of an investment. It’s more about protecting clients’ investments than it is about “doing the right thing.”

What do you think will be different this year for PE compared to last year?

2020 was largely about protecting the base…ensuring that portfolio companies had liquidity, run way, distribution channels, supply chains that worked well, safe work environments and solid balance sheets. 2021 will be about growth and value creation, especially as many trends grew exponentially like direct to consumer, working remotely, etc.

PE will now focus on capitalizing on these trends by improving margins and lowering costs-efficiency with new technology will allow for focus on growth in profitability and thus value creation rather than value protection.

Are you seeing a shift in outsourcing PE fund administration?

Yes, just like all other types of companies, PE firms want to focus on their core business proposition: making great investments and generating high returns.

The ever-increasing complexity of fund administration in the new reality of (international) regulatory compliance and reporting requirements is pushing PE firms to add outsourced administration to their in-house capabilities to ensure continuity and best practices and to offer tools (such as portals) to ensure professional and timely reporting.

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