I would like to begin by extending my congratulations to all of this year’s GP award winners. This year’s awards were conducted in partnership with Bloomberg using fund manager data to pre-select the shortlists of nominees on which Private Equity Wire’s readers all voted.
In an industry where saying one is ‘best-in-class’ cannot be underestimated, the fact that each one of you presented in this report topped your respective award categories, is a clear recognition of the outstanding work you have done for your investors over the last 12 months.
It’s been another strong year for private equity. Over the last 12 months, total AUM has continued to rise, there is a record level of dry powder, and as the size of average fund vintages continues to rise, this all points to private equity being an increasingly important asset class.
And one that has played a key role in supporting businesses during Covid-19. Over the last six months, PE firms have reacted adroitly to work with their portfolio companies, helping address short-term liquidity issues and providing strategic guidance on how to navigate choppy economic waters.
One of the common themes that I’ve heard speaking to GPs is how remote working has actually helped forge even closer relationships with management teams. As vital as interpersonal relationships are between PE sponsors and their portfolio companies, Covid-19 appears to have accelerated the role that technology now plays, not only in better understanding operational performance, but also how deals are sourced and how operational due diligence is being better streamlined. This in turn, is allowing deal teams more time to identify and address potential issues with firms, before deciding to invest.
On the deal front, even though buyout activity has understandably slowed this year, this is likely to be a temporary hiatus. I expect 2021 to be even more dynamic for this asset class, both in terms of deal activity and fundraising activity.
One future source of additional fundraising for PE firms could reside within the US defined contribution market, with the US Department of Labor having recently clarified its guidance that private equity was an eligible asset for inclusion in individual account plans, such as 401(k) plans. However, leading investors such as Pantheon – voted this year’s Best Fund of Funds Manager – expect this to be more of a “long-range opportunity rather than a near-term one”, according to Paul Ward, Managing Partner, adding that there is still much foundation building and education to be done.
As fund sizes continue to grow, GPs are under increasing pressure to commit capital alongside their LPs. This could well present opportunities for firms like Dyal Capital Partners – voted this year’s Best Growth Manager (>$1bn) – to provide permanent capital to high quality managers.
“Nothing is going to structurally change to make private equity less important in the global economy – in fact, it will likely use more,” comments Michael Rees, Managing Director and Head of Dyal Capital Partners. “I think private markets are going to become even more important as and when we emerge from this pandemic, where smaller, family-run businesses look to PE sponsors to help them over the coming years.”
Investment opportunities in the US healthcare and technology space remain incredibly buoyant, while purchase price multiples broadly unaffected by the impact of the pandemic. Indeed, many firms are arguably in a stronger position, and as they look to remain private for longer, this is giving PE firms the chance to put all of that dry powder to work.
One of the PE industry’s leading technology investors, Vista Equity Partners – voted this year’s Best Large-cap Buyout Manager – sees tremendous opportunity for the deployment of smart, strategic capital to grow and scale lower middle-market and middle-market companies across the enterprise software sector.
There has been an acceleration in the digital transformation of virtually every sector and organisation which has led to the proliferation of enterprise software companies at all stages in the market. As a result, Vista is constantly identifying and researching companies that have the ability to scale with additional investment and the deployment of operational best practices.
Indeed, as David Belluck, one of the founders of Riverside Partners – voted this year’s Best Mid-cap Buyout Manager – highlights: “We currently have three companies signed under letter of intent; all of which we expect to complete in the fourth quarter. All three companies are differentiated healthcare or technology businesses, and in all three companies, the founders and management are excited about maintaining significant equity, continuing to grow the company, and teaming up with us to accelerate growth.”
The same is equally true in respect to the investment outlook in global real estate “Overall, we believe the current environment will provide exceptional, once in a cycle real estate investment opportunities,” remarks Jennifer Barbetta, Chief Operating Officer at Starwood Capital – voted this year’s Best Real Estate Manager (>$1bn).
One final remark I’d like to make is the import of not overlooking the role PE plays in supporting the wider economy. Private capital has been, and still is, a vital lifeline for smaller businesses as they seek to scale. Job creation is a benefit that often gets overlooked in how PE is portrayed in the mainstream media.
In Europe, a recent study by the trade body Invest Europe, found that PE-backed businesses had created jobs five times faster than the European average. The same I’m sure can be said for the US, the home of global private equity. n