Appetite for alternative investments is expected to fall in the wake of the coronavirus pandemic, but limited partners, or LPs, are still eyeing up opportunities to deploy capital, panelists at Carmo Companies' Global Private Equity Web Meeting on April 27 said.

Appetite to invest in private equity is "certainly going to be decreased, it's just a question of how much," said Christopher Caparelli, Vice President at Boston-headquartered general investment consulting firm Marquette Associates Inc.

The firm is encouraging clients to take an offensive approach and to remain committed to private equity later in 2020, and doesn't want to see a pause in all activity because "this could end up being a great vintage year — from late 2020, to early 2021." But it will be tough as the rest of LPs' portfolios shrink, leaving some overallocated to the asset class. "Hopefully we can remain disciplined, but it's certainly going to be at a lower amount than it otherwise would have been going into the year," Caparelli said.

Peter Teneriello, who is responsible for private equity investments at Texas Municipal Retirement System, said some opportunities in its investment pipeline have slowed down "a lot" but there are other areas that have "really ramped up."

"Every special situations or distressed credit type of manager has come out of the woodwork, and they're coincidentally all fundraising right now. This is their time in the sun. They've been waiting for a decade, they've come out of hibernation, and here we are," he said.

Texas Municipal Retirement System made its first private equity commitment in late 2015 and focuses on North America with a small Western Europe exposure. Its target allocation to private equity is now 10%, up from 5% in December 2019, and in terms of its net asset value, or NAV, it is "just north" of a 3% allocation to the asset class. "We didn't mean to market time, but we're going to be very, very sharply increasing our pacing for private equity going forward into this new environment," he said.

Teneriello said he is considering distressed credit-type strategies and that distressed strategies are looking a lot more attractive now, especially if LPs want to deploy capital this year. "Our program is in the state where we need to be deploying capital to reach our NAV targets, and it looks like it's going to be hard otherwise to get that capital actually in the ground and invested unless we are looking at some more of these distressed-oriented groups that, yes, they may be able to do buyouts, but they can also flex into buying the debt and taking these companies through bankruptcy."

Texas Municipal Retirement System has also made an increasing number of commitments to software-oriented general partners, and Teneriello said it may accelerate that because early signs "seem to show that the recurring revenue business model in software — it's proving resilient so far." But the bar for making new investments "remains as high as it ever was," Teneriello said, and Texas Municipal Retirement System is "skating towards areas that were lower-returning in different environments."

Marquette Associates has been allocating to private debt for a while, Caparelli said, and even going into the crisis was very cautious, as it is a relatively new space. "What was concerning us going forward was that a lot of these groups hadn't been through a downturn, hadn't done workouts, haven't taken over companies in bankruptcies, so we were pretty cautious on the manager selection side of that asset class," he said, adding that the firm tries to "only utilize the best managers that have a long track record through different crises."

China Post Life Insurance, which invests globally and has around $35 billion to allocate to alternative investments, has commitments in the oil and gas industry predominantly in North America which "definitely has got some challenges," its head of private equity investment Jason Zhao said. But he is optimistic about the firm's investments in managers seeking out specialty real estate assets, namely logistic warehouses, and expects there to be further opportunity. He also sees opportunities in healthcare, an area where China Post Life Insurance hasn't typically invested because it has favored return prospects from sectors such as technology and software. "In the future, probably there's more growth opportunity [in healthcare], fast-growth opportunity, and also it's a safer sector, a more stable sector," he said.