COVID-19: A checklist for private equity fund managers

COVID-19 checklist for private fund managers

Keep Calm and Carry On, a slogan invented in Britain in 1939 as a morale booster in preparation for World War II, has survived as a twee t-shirt, poster and coffee mug motif. Until now.

The spirit of this message is being reincarnated, now fully understood and appreciated by the current generations amid this new ‘world war’ against the coronavirus. 

While many of us are keeping calm and carrying on, adapting quickly to working from home and operating remotely, there is a lot for fund managers to think through while the extent of disruption remains uncertain.

For managers operating within the private funds space, the following is a list of key considerations and best-practice actions that we are seeing implemented across the sector in light of COVID-19. We hope it may prove to be a useful checklist for your own business.

  • Several leading fund domiciles, including Luxembourg, Guernsey and Jersey, have made allowances for the impact of the coronavirus – such as temporary relaxation of economic substance requirements (in light of travel/meeting restrictions) and extended deadlines for financial return submissions. Consult with your service provider(s) for more detail on the latest in this fast-evolving situation and how you may be impacted
  • Consider a pre-emptive capital call to create a small pool of liquidity at the fund level that could subsequently be loaned out to portfolio companies in the event of future financial distress
  • Where some investors are already challenging paying call notices, consider pre-empting via a subscription credit facility. Warm up existing investors to consider additional allocations to pick up any potential defaulting investor allocation
  • Delay or defer distributions to LPs until further notice and the situation becomes clearer
  • If currently fund raising, check the duration to the end of the closing period and review fund documentation to consider an extension with investor consent. If fund raising is complete, consider the appropriateness of requesting an extension to the investment period
  • Pause additional bolt-on acquisitions to focus on cash generation
  • Review working capital requirements, including regulatory capital
  • Review loan covenant positions and forward planning on future interest payment dates
  • Review and stress-test cashflow forecasts
  • Review envisaged capital expenditure and consider leasing, hiring or deferment
  • Take advantage of government-introduced provisions (e.g. VAT payment deferments)
  • Regarding credit facilities due for repayment, consider increasing facilities rather than settlement
  • Consider any FX forward contracts due for settlement
  • For general FX transactions, plan ahead and consider trade value dates. Also, consider increasing your FX broker limits should they not be sufficient
  • Check existing insurance policies for business interruption cover
  • Where possible, i.e. in line with local government requirements, utilise electronic signatures and online document signing procedures. Discuss with your service provider(s) to arrange a flexible documentation process for the notarising and apostille of original documents.
    DocuSign is one such solution that provides security around electronic signatures
  • With travel restrictions in place, expect and plan for annual leave cancelations and greater rollover of unused annual leave among your staff
  • With staff having moved quickly to home-working, consider data transfer/security implications and ensure adherence to applicable data protection regulation.  

Finally, communicate, communicate, communicate – with your teams, with investors and market participants – to provide reassurance of stability during these challenging times and to keep the positive sentiment going.

I hope you find the above pointers useful. If you wish to discuss anything I’ve mentioned, please don’t hesitate to get in touch. Now, time to break for a homemade coffee in a twee mug…