How long before the corona virus drives down prices?

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March 16, 2020

by a searcher from University of Virginia-Darden - Darden School of Business in St. Louis, MO, USA

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Reply by a searcher
from University of Virginia in St. Louis, MO, USA
The question to me is where "dry powder" goes and the timing involved.

20 years ago there was plenty of dry powder when the market bubble popped. I can't even tell you how many times I heard that line. When market bubbles pop, the value doesn't go anywhere, it vanishes, literally.

The people who have liquidity are now deciding what to do with it. Invest in a blue chip stock that just dropped by 30 to 50 percent with proven long-term demand or an acquisition? Liquidity will likely flow into the public markets because the value will be there when it wasn't a few months ago. This assumes that you believe we were in a bubble, as I do. The fact that this crisis will likely be short lived might exacerbate this trend as investors scramble to alter their portfolios prior to the end of the corona virus crisis.

Companies like American Airlines and Boeing are looking like pretty good 5-year bets to a lot of people right now. I think that funding search funds and acquisitions will be more difficult in the short term that it was a couple of months ago because alternative investments are now much more attractive.

This is my line of thought. What do you think?
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Reply by a searcher
from Duke University in Short Hills, Millburn, NJ, USA
This is a massive demand shock that is going to be felt widely across the entire economy. As such, I would watch for stress in PE portfolios. A lot of the dry powder could quickly evaporate (we saw this in the financial crisis when LP cancel commitments) if private equity portfolio companies (many of whom are highly leveraged) start to see high levels of insolvency or severe liquidity problems. It would be interesting to get comments from folks who work at secondary funds if LP commitments are already being flogged off.

The key issue to watch is whether PE portfolio companies get any of the federal bailout monies - since they employ a lot of people, they probably will but at what cost is that money handed out to a private equity fund vs. small business.
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