Battling inflation with high levels of gross debt and in particular household debt ... that becomes very challenging. Photo / AP
Battling inflation with high levels of gross debt and in particular household debt ... that becomes very challenging. Photo / AP
With 24 years under his belt at the forefront of private equity investment in New Zealand, Gavin Lonergan knows a thing or two about markets.
And what he knows right now is that the economy is heading into a difficult period, not to say the last couple of years have been plain sailing.
The Direct Capital director rattles of the list of all the things making headlines at the moment – widespread inflation, rising interest rates, damaged supply chains, labour shortages, Covid still, and now war in Ukraine – and the conclusion is it's all pretty negative.
But, he says we have had variations of these events before – the oil shocks of the 1970s for example – and they do tend to melt into the history of the "ups and downs".
"And, maybe that should be the comforting perspective," Lonergan says, talking to the Herald in the latest episode of Continuous Disclosure, a new podcast hosted by the Herald's business reporters with support from Fisher Funds.
"Life is volatile, business is volatile, but we always do get through these periods."
While the current environment doesn't necessarily have much effect on a private equity company's day-to-day thinking, it is a big factor for the firms and people that they invest in.
"Our basic approach hasn't really changed at all," Lonergan says. We are still looking to partner with good people, good private companies and good industries. And there are good opportunities.
Gavin Lonergan is a director of local private equity firm Direct Capital. Photo / supplied
"Covid has been a really fascinating period to go through from a business perspective. In our portfolio, we had one company that we thought would be very negatively impacted. But in the two years since it has nearly doubled its business.
"So the impact has been quite different to what we thought and, to be fair, what probably most people thought."
Lonergan is not keen on making predictions – anyone who does that is going to look foolish, he says – but he does think the economy is in for a difficult year ahead.
"Battling inflation with quite high levels of gross debt and in particular household debt … that becomes very challenging and there are not many instances where the trade-offs involved in that have not led to recession.
"So I think, without saying we're going to go into a recession, the risks are reasonably high and it's a time to be cautious."
Continuous Disclosure is a NZ Herald Podcast
Continuous Disclosure is available on IHeartRadio, Spotify, Apple Podcasts, or wherever you get your podcasts. New episodes come out every second Wednesday.
