Alternative investment, which includes private equity among other areas, is often dubbed “smart” investment. It means that it strives to avoid the so-called cheap investment waves, and it looks for value in areas where others are reluctant to see it. In the time of crisis, this applies twice as much.
While concentrating on the so-called defensive sectors which are the most recession-resistant – such as utilities or healthcare – may at the first glance seem as the most rational strategy in the current time, private equity and other alternative investors are already setting their sights elsewhere. Buying assets in defensive sectors has proven the right thing to do in the run-up to the crisis we are seeing today. The fact that assets have been put on the market that are fundamentally healthy, but their owners have got into serious problems due to the crisis significantly increase the investors’ requirement for return on the investment. At Penta we have also increased IRR (Internal Revenue Rate). We expect that the value of assets acquired in the region of Central Europe may still drop from the level before the crisis – by up to a quarter or even more.
Choosing the right time for investing will be the key – when the crisis hits the peak and economies begin to get out of stagnation or out of recession – as the case may be. The time will show whose investments were successful. We expect that the mid-2010 will see resurgence in the acquisition activity in the whole sector of alternative investments, particularly in buy-outs.
František Tregler
Head of Investments Risk