Global asset manager Investec has just published “Investec Private Equity Insights 2013” which explores the issues that private equity faces as the industry adapts to the post-crisis environment. The new report is based on insights from 15 influential senior executives in the European private equity market and focuses on three areas – perception of private equity; evolution of the industry; and the importance of innovation. A link to a free copy of “Investec Private Equity Insights 2013” is available at the end of this article.
“We are all aware of the issues that the private equity industry has faced in the past but this research provides some fascinating insight into what is going to drive it in the future. It is clear that from speaking with a number of prominent industry figures, while buyout firms have done a lot to prepare themselves for the new industry landscape, there is a lot more to be done before the winners and losers are determined and what the wider industry will look like as a result,” said Simon Hamilton, Global Head of Investec Fund Finance.
Some insights of note coming out of the study include:
A lack of understanding continues to hamper the private equity industry
The study highlights the need for the private equity industry to be more effective in addressing its long-running image problems, by developing a better understanding of the private equity model and the valuable contribution it makes to the economy and the wider society. There are fears that failure to address these misconceptions among investors and the broader public will result in even further regulatory burden along with a negative impact on the industry’s ability to raise funds in the future, particularly from new sources of capital.
Industry professionals, such as Markus Golser (Graphite Capital), Volkert Doeksen (AlphInvest) and Sir Ronald Cohen (Portland Trust) commented that questions are certainly being asked of the private equity industry, which needs to adapt to the post-crisis environment. There are calls for buyout firms to behave more maturely, in turn differentiating the private equity industry from other areas with negative perceptions, such as hedge funds.
Differentiation is the key as investors take a flight to excellence
The evolution of the private equity industry is already underway – albeit at a slow pace. Following the good times of a decade ago, limited partners are now sifting through the excess capacity and focusing on backing those buyout firms with specialist sector knowledge and the ability to create value in difficult market conditions. The challenge for the private equity industry is differentiating your firm from the rest, with the winners emerging as the new industry leaders while the losers fall by the wayside.
Industry figures including Andrea Bonomi (Investindustrial), Mark Redman (Omers Private Equity) and Mark Nicholson (SL Capital Partners) also suggest that the successful private equity firm of the future will find it necessary to develop new fund structures in order to provide flexibility to limited partners, or face the threat of being left behind as the industry contracts in preparation for future growth.
Innovation is at the heart of future success
Innovation and agility will be instrumental to surviving and achieving subsequent expansion. The industry will need to create more liquidity in a market where new, non-traditional private equity investors are deterred by long-term lock-ups. Innovation has to be at the center of the industry’s adaptation process – devising new models and strategies to meet the changing needs of investors will help separate the weaker firms from the players who will lead the industry into its next phase of growth.
The sector leaders interviewed by Investec, that also included Jos van Gibergen (Syntrus Achmea), Peter Taylor (Duke Street) and Andrew Sealey (Campbell Lutyens) argued that while some firms have started innovating to address these issues, the pace of change was seen as “glacial” and many structural issues in the sector still need to be addressed.
For a free copy of “Investec Private Equity Insights 2013” click HERE.
© 2013 PEPD • Private Equity’s Leading News Magazine • 11-4-13
