Leading figures in European private equity (PE) are predicting a significant shift in industry dynamics in the coming years as buyout firms seek to attract new investment, according to a study by Investec Fund Finance.
Investec Private Equity Insights 2013 explores the issues that PE firms face as the industry adapts to the post-crisis environment based on insights from 15 influential senior executives in the European PE market and focuses on three key areas – perception of PE; evolution of the industry; and the importance of innovation. The research reveals fear that the sector is doing too little to sufficiently address some of its most pressing problems.
Simon Hamilton, global head of Investec Fund Finance, says: “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. Innovation is at the heart of what we do, enabling us to successfully partner with clients to meet their evolving requirements in a dynamic marketplace.”
The study highlights the need for the PE industry to be more effective in addressing its long-running image problems, by developing a better understanding of the PE 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 PE industry, which needs to adapt to the post-crisis environment. There are calls for buyout firms to behave more maturely, in turn differentiating the PE industry from other areas with negative perceptions, such as hedge funds.
The evolution of the PE industry is already underway – albeit at a slow pace. Following the good times of a decade ago, LPs 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 PE 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 PE firm of the future will find it necessary to develop new fund structures in order to provide flexibility to LPs, or face the threat of being left behind as the industry contracts in preparation for future growth.
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 centre 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.
