We continue our special series with the fourth of “Five Biggest Private Capital Surprises of 2020”:

Surprise #4: Which Industries Mattered?

For experienced credit managers, diversity is a critical guiding principle. This applies to both industry concentration as well as commitment sizes. The question coming into last March’s downturn was, have we made the right decisions on industries to lean into and ones to avoid?

Over multiple business cycles, it’s empirical that certain sectors swing more heavily – the cyclicals – during recessions. For generalists that discourages investments in energy, chemicals, retail, high-end consumer, and real estate, though specialists in those areas are certainly active.

Once COVID began sweeping through the US, winners and losers were quickly ordered around the “haves” – businesses least impacted by shutdowns – and “have-nots” – those most affected. What surprised observers was both how clear the distinction was and how persistent the trend.