Recent events in the financial markets around the globe have left many asking: what next?
Recent events in the financial markets around the globe have left many asking: what next? But according to Tom Cartwright, private equity partner at European law firm Taylor Wessing, the private equity industry could emerge from the crisis well placed.
Cartwright comments: ‘Recent events will weaken the economy further, and of course the private equity industry will not emerge unscathed. Consumer spending is expected to slow dramatically in the coming months, which will adversely affect the value of many portfolio companies. Fundraisings in current conditions will be difficult. Debt will become even more expensive and scarce, making larger leveraged buyouts particularly challenging.
‘We will now see a shift of focus as investors return to fundamentals, and seek returns based upon well managed businesses, as opposed to sophisticated financial techniques. This is where private equity will come into its own. Many PE houses have a track record of managing companies through difficult times and their skills will be put to good use in current conditions. As the majority of portfolio companies are unlisted, they can trade away from the glare of the markets and without fear of attack by short-sellers.
‘As the dust settles, we expect a weight of money to flow into private equity, particularly in the mid-market. It is now seen as a relatively mainstream asset class, and as institutions and high net worth individuals scramble to reduce exposure to equities and structured products, private equity will be one of the benefactors.
‘This is perhaps a chance for the private equity industry to prove its lingering doubters wrong, and generate above-average returns for investors during a difficult period.’
