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Private equity investment firms enjoy strong year

Private equity investment companies have enjoyed strong performance over the past year, according to the Association of Investment Companies. 

Over the last year the average private equity company is up 53 per cent, but it is down 24 per cent over the last five years. 

The AIC has spoken to private equity investment company managers to gauge their views on the outlook for the private equity investment company sector. 

Despite recognising that there are still challenging times ahead, the managers believe that 2010 will be a good year for the sector. 

Brian Scouler, manager of Dunedin Enterprise, says: “After difficult times at the end of 2008 and throughout 2009, private equity is now looking much better placed for 2010. The M&A market is showing signs of life and there are indications of appetite returning to the banks, albeit at modest gearing levels and higher prices. We expect to see a good uplift in new investment opportunities this year.”

Steve Belgrad, chief financial officer of HarbourVest Global Private Equity, adds: "Trends in private equity continued to improve over the past six months. Fourth quarter distributions were encouraging as a result of increasing liquidity and net asset values at year end have generally also  been up. With strong markets and the associated potential for IPO activity, we are hopeful that these trends will remain throughout 2010.”

There is no doubt that the recession had a severe impact on the private equity sector.  This time last year despite performance having suffered in the sector, managers believed that they were sitting on a once in 20 year investment opportunity.

Scouler says: “Private equity backed businesses have not escaped the impact of the recession, particularly those with high levels of gearing. Nevertheless, the skills, experience, and hands-on involvement of private equity practitioners have helped them make their way through the challenges of the last year. Business and capital restructurings were a major theme for 2009 but the work done last year should better position these businesses for new opportunities in 2010.”

On the back of the financial crisis, there has been a conscious move for increased regulation for the financial industry. One such piece of regulation from Europe, the Alternative Investment Fund Managers Directive, has posed a potential threat to private equity investment companies. 

Ian Sayers (pictured), director general of the AIC, says: “When originally proposed, the AIFM Directive could have been very damaging for private equity investment companies. The ‘one size fits all’ approach failed to recognise the benefits of investment companies, whose closed-ended structure makes them ideal for holding illiquid asset classes like private equity, whilst providing liquidity for investors through the stock market. There has been a lot of progress to date but, with the proposals due to be finalised later this year, we are taking nothing for granted.”

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