COVID-19 & The Economy: Investment Capital

Private equity is playing an important part in helping the American economy get back on track after COVID-19 forced businesses to close across the country. In Q1 of 2020, private equity invested $64 billion in more than 1,000 American businesses. These investments support local jobs, families, and communities.

Funds of every size have injected much-needed capital into businesses grappling with an abrupt, unexpected loss in revenue or scrambling to make necessary investments to revamp their operations or supply chain. Examples include:

  • US Foods – KKR invested $500 million in the American foodservice distributor as it dealt with dramatic demand shifts for restaurants and grocery stores.
  • Eventbrite – Francisco Partners invested $225 million in the event management and ticketing website as it grappled with the abrupt cancellation of events around the country.
  • Expedia Group – Apollo invested $1.2 billion in the owner of popular online travel platforms, including Travelocity, Trivago and VRBO, as global travel more or less stopped.
  • Airbnb – Silver Lake and Sixth Street Partners committed $1 billion in capital to the online rental platform as bookings plunged because of the pandemic.
  • Extended Stay America – Blackstone and Starwood Capital both invested in the North Carolina-based lodging company at a time when hotel demand plummeted.
  • Retail Sector – Brookfield Asset Management is spending more than $5 billion to assist retailers currently struggling from lockdown and stay at home orders.

As the COVID-19 pandemic continues to impact companies across America, the private equity industry is working around the clock to make responsible, long term investment decisions.

Private equity fund managers are stewards of funds that expand retirement savings for millions of American workers.  They have a fiduciary responsibility to generate the strongest possible returns on investments that enable retirement security for teachers, firefighters, and other public servants. This responsibility means there are some limits on how the industry deploys so-called “dry powder” – the money pooled by these investors.  While “dry powder” cannot be used to save every struggling company, it is being deployed strategically to shore up more companies, support more jobs, and strengthen pensions for America’s public servants.

As Buyouts magazine noted, “Most private equity firms are not able to use the bulk of their uncalled capital to simply re-invest into existing portfolio companies that need help… These firms might have new funds that are barely deployed, but that capital is not meant to be used to reinvest in older portfolio companies. GPs would have to get limited partner approval to invest new capital into older portfolio companies. Those LPS – pensions, endowments, insurance companies – didn’t commit to the private equity funds for their capital to be used to prop up struggling older investments. They want their capital bused to buy and grow new companies for the outsized returns private equity can generate.”