There’s no running away from the uncertainty COVID-19 has had on the financial sector. According to Ho (2020), most major stock markets like the S&P 500 and Straits Times Index (STI) have seen major declines in prices but have seen a rise in volatility.
Naturally, investing amid the pandemic is challenging. As an investor sitting on a lot of “dry powder”, you’re probably wondering if you should use those funds to seek out new opportunities.
This period we’re in, the ‘new normal’, is uncertain. In light of this, investors like yourself need to adapt and continue making moves. Opportunities are still everywhere, although maybe not as apparent as they used to be. Risk appetites vary- but no matter the case, if you’re going to fire your bullets, you need to have clear targets in front of you. The key is to know which opportunities to capitalise on.
The ‘COVID-19 business litmus test’ or ‘natural selection process’, has shown investors that now is the best time to focus on resilience when doing due diligence. A business with a strong cash flow or a capable management team that knows how to pivot with the challenges that this uncertain period brings is invaluable. After all, these are businesses that have survived and/or thrived despite the harsh conditions of the pandemic.
A McKinsey article written by Hirt, Laczkowski, and Mysore (2019), mentioned that there were three key things resilient businesses did before an economic downturn, to be able to have an earnings advantage over their non-resilient peers.
First, resilient companies created flexibility by cleaning up their balance sheets. Secondly, resilient companies cut costs ahead of the curve. Finally, resilient companies in countercyclical sectors focused on growth, even at the expense of incurring higher costs.
Looking for these patterns while doing due diligence might come in handy.
Besides resilient companies that have passed the COVID-19 litmus test, startups are another option investors should explore.
In a webinar our affiliate company CapBridge conducted, it was mentioned that there is a surge of interest in venture capital funds for startups in the tech and health-tech sectors. According to a blog post by Global Business Intelligence, six new business sectors are thriving despite the COVID-19 outbreak.
1. Doctor-on-demand apps
2. Smart robot makers
3. Remote meet-up solutions
4. Biotech businesses
5. Trading fintechs
6. Streaming services
Investing in startups in these business sectors might prove to be profitable. There is another market opportunity that might prove to be getting higher returns. This is an area that’s not available to the public eye- the private market. Putting your money into private market investments not only offers attractive returns, but also diversifies your equity allocation (Capital Dynamics 2017). This brings us to the next market opportunity you should seize- portfolio diversification.
Diversifying your investment portfolio is very important. It’s age-old teaching that makes a lot of sense- don’t put all your eggs in one basket.
As mentioned in the webinar CapBridge conducted, a McKinsey analysis of the impact COVID-19 has had on the private equity sector showed that companies focused on healthcare and on retail that’s a part of the front-line response sector will benefit the most in these turbulent times.
The thing is, a lot of these companies are choosing to be directly listed. Gone are the days when super successful companies (think: unicorns and decacorns) feel that the only way to expand is to go public. Unicorns like Spotify, Slack and Grab are the perfect examples, choosing to be directly listed because growth on this front has proven to be more hassle-free than a traditional IPO, while still providing a path to liquidity (Kunthara 2020).
A great place to start looking into how to invest in privately listed companies is to take a look at private exchanges that are available to you. One such platform is 1exchange (1X), the world’s first licensed and regulated private securities exchange.
1X has investment products aligned with your risk appetite. Our 4 products available to you are:
1. Capital Preservation Investments
2. High Yield Investments
3. Late-Stage, High Growth Investments
4. Private Funds
While it may seem bleak that an end to the pandemic isn’t concrete at this time, this doesn’t mean the world has to stop. As an investor, you need to roll with the punches. If you do, you’re more likely to emerge from the pandemic stronger as compared to an investor who doesn’t take action during this ‘new normal’. Read our Investment Themes 2021 article to find out what other investment opportunities lie ahead for you in 2021 and beyond.
If you’re interested in knowing more about how you can take action, our 1X team will be happy to discuss private market investment opportunities with you.
Capital Dynamics 2017, Diversify your portfolio with private equity, viewed 30 November 2020, https://www.capdyn.com/Customer-Content/www/news/PDFs/diversify-your-portfolio-with-private-equity.pdf
Hirt, M, Laczkowski, K & Mysore, M 2019, Bubbles pop, downturns stop, viewed 12 October 2020, https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/bubbles-pop-downturns-stop
Ho, T 2020, Opportunities Beyond COVID-19: Is This The Right Time To Start Investing?, viewed 12 October 2020, https://dollarsandsense.sg/opportunities-beyond-covid-19-right-time-start-investing/
Kunthara, S 2020, Why Direct Listings Just Became A Lot More Attractive As An IPO Alternative, viewed 30 November 2020, https://news.crunchbase.com/news/why-direct-listings-just-became-a-lot-more-attractive-as-an-ipo-alternative/
Neuberger Berman 2019, Private Equity and Your Portfolio, viewed 30 November 2020, https://www.nb.com/en/global/insights/investment-quarterly-asset-matters-private-equity-and-your-portfolio
The opinions expressed in this publication do not purport to reflect the opinions or views of 1exchange (1X).