U.S. Private Capital Outlook 2020

December 2019

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Bracing for a Bear Market: Private Capital Readies for Economic Impact

Ten years into a bull market, economists and analysts have been biting their nails in anticipation of the economic indicator that will flash with finality “Recession.” Between slowing global GDP, decreasing global corporate capex, deflating U.S. manufacturing reports, Fed rate cuts and inverted yield curves, there has been no shortage of developments to mine for economic forecasts. Predictions about when a bear market might begin have been replaced by mobilizing for the eventuality of one. What goes up, must come down.

Indeed, 72% of private equity funds expect an economic downturn within two years, according to BDO’s inaugural U.S. Private Capital Outlook, which updates and expands the longstanding Private Equity PErspective Survey. The venture capital industry—surveyed alongside PE for the first time—is slightly more optimistic on timing, with just over half (56%) anticipating a downturn to hit within the next two years. However, that a bear market is coming is a foregone conclusion: 92% of PE and 87% of VC respondents expect a downturn to occur within four years—less than the length of most investment holding periods.

Most recessions are triggered by unforeseen shocks to the financial system—but there are other indicators of fragility.