COVID-19 has been and continues to be a health and economic tragedy and has cut large swathes through many countries throughout the world. There is no doubt that COVID has pushed the markets and applied increasing pressure on topical trends (eg. office space usage, remote working) and on certain sectors (e.g. retail and hospitality) that were on their way down pre-crisis. But the most significant development from our point of view is how polar opposite some of the consequences seem to be that are unfolding.
Take for example how the industry has reacted to COVID-19 compared with what happened immediately after the global financial crisis (GFC). The initial period of shock and triage in the autumn of 2008 was followed by a deep downturn in activity, with clients going defensive, freezing assignments, hunkering down and severely focusing on mitigating risk. As an example, at the time of the GFC, Sousou Partners were retained by over 40 clients and all but one froze or ended their searches. This rapid deterioration in confidence and disinvestment reflected and mirrored the seismic shock and profound feeling of dislocation felt by many businesses. This time round, the initial period of adjustment has been followed by a far quicker and more proactive and positive response. We have seen little downturn in assignments but in fact our business has expanded and continues to grow.
Another example of ‘polar opposites’, is that we see clients dividing into two camps with divergent approaches towards building out their businesses / teams to handle the aftermath.
Some clients, despite the tragic fallout from COVID, see the current investment landscape as the opportunity of a lifetime. They have taken an aggressive stance and are bullish about longer-term prospects or if they’ve been thinking about entering the real estate market for the past five or six years, feel that now (or soon) is the best entry point they are likely to get. If I were to overgeneralize I would say , these groups tend to be more entrepreneurial, independent, nimble funds that have been lucky / good at their timing and have already positioned their portfolios for a downturn (not a pandemic – no one saw that one coming). They tend to have dry powder via a third party or strong balance sheet or have significant capability in raising equity. Some have even been in the ‘penalty box’ for the past decade post GFC and have wisely spent their time with LPs and have now been forgiven in time for the ‘mother of all opportunities’.
The second reaction is a defensive, risk mitigation response. These clients are looking to rationalise or divest their portfolios or else protect their investments by finding ways to reshape assets and add value. They tend to be either firms concerned about their holdings or maybe were not fast or aggressive enough in divesting away from sectors such as retail or hospitality, or they may have large teams focussed more on growth and are in need of ‘work out skills’. They may also be focussed on internal management as the work environment changes to remote working and are in need of COOs to manage teams and continue to focus on one of their strongest assets – culture.
Both sets of clients are active.
On the micro and individual level, we’ve seen two trends that are again very different than what was seen post GFC:
First – resilience and adaptability. Most of our clients have adjusted fairly seamlessly to operating from home and conducting the different parts of the recruiting value chain in a remote, distanced manner. We have taken briefs, identified and assessed candidates and clients have hired and on-boarded people virtually without missing a beat.
Second – a strong sense of positivity and wanting to capitalise on opportunity. We have seen several senior executives appraising the landscape and thinking that now may be the time to make a move either to an entrepreneurial risk-taker at the centre of the next wave of action or a bigger firm looking to add a different, non-traditional skill set to their team. This increase in interest from top tier talent is further fueled by the uncertainty around the values of their carry. But the focus seems to be shifting yet again towards the opportunity ahead rather than the comp structure that was designed to retain talent.
Both trends contrast greatly with the sense of paralysis and fundamental market dislocation that prevailed immediately after the GFC, as activity levels fell off a cliff and uncertainty lingered and lingered, leading to paralysis in the system.
We don’t know what 2021 will bring and on the economic cost front it certainly seems that many governments seem to be ‘kicking the can down the road’ and deferring general economic pain. Plenty of questions remain such as: how do we deal with year- end compensation? What happens to access to leverage? How are banks going to deal with the aftermath? And when do private and public market diverging valuations start to align and make sense again?
But for now we feel the extra movement, planning, positivity and sense of opportunity.