Building Momentum. With the acute focus on divestitures and durable capital structures dissipating, the spotlight is turning to post-COVID-19 opportunities. Policy will provide critical support to this next leg of growth, but how we rebuild will determine secular growth trends and ultimate success.
Areas most disrupted in the past few months—entertainment, real estate and travel—will likely provide the deepest long-term value opportunities. We anticipate near-term returns linked to accelerating trends around locally-sourced consumption, digital content, cybersecurity and life sciences. This will be further supported by the lagging replacement and upgrade cycles expected to bounce back over the next five years, potentially creating trends reminiscent of the roaring 1920s.
Locally-sourced consumption has impacted the way communities and industry niches organize. At the same time, the health of metropolitan hubs and urban centers of innovation is waning as they experience rapid out-migration trends seeking less dense environs. Bold solutions are also emerging in new job creation, which is most pronounced across Steward’s primary market, the US middle market. Our focus on innovation and value creation will be central to these evolutions.
Sector Expertise and Adaptability. As 2019 business plans quickly became obsolete, the focus has turned to tapping professionals with the deepest sector expertise in business partnerships and re-engineering supply chains.
We are experiencing an in-sample stress test as companies and their private equity partners pivot their planning, protocols and logistics. Many of our pre-fund I emerging managers face bifurcated valuations as they seek post-COVID-19 opportunities. Dislocation has resulted in regional and sector-specific distress. Steward and its pipeline of managers are fortunate to be deploying with full aperture, without legacy distractions and towards areas where clarity can only improve.
Efficiency, diversity and sustainability are key ingredients for longevity in this resumption of growth, whether these qualities pertain to materials management, workers’ safety, healthcare delivery, food supply or localized value-chains. Recency biases will leave short-term scars as we remain cautious in the return to normalcy. Our long-term expectations are bullish as we capture this once-in-a-decade opportunity to buy at reduced multiples amid the transformation.