John Singer, one of Advent International’s managing partners, sounded a positive note for the future of the private equity industry last week, but stressed it could only move forward if trust between all the involved parties is restored.
Singer told delegates at the EVCA Buyout Forum in Copenhagen, Denmark that the “chameleon”-like nature of private equity professionals would allow the industry to remain flexible enough to survive changing market conditions.
Singer ran through a number of data points outlining the current state of the private equity market, concluding the picture is currently both positive and negative. “Deal flow is tough,” Singer said. “Families don’t really want to sell, the banks don’t want to take the keys to businesses and corporates are reluctant to hive off [non core assets].” He also pointed to the fact that capital calls are still outpacing distributions and that it is taking on average 19 months to raise a fund.
In contrast, there is still increasing appetite from limited partners to invest in the asset class and – historically – post-recession years have produced the best-performing investments, he said.
Singer had opened with his keynote speech with a slide showing the cover of a recent edition of the UK lifestyle magazine Country Life, emblazoned with the headline: “2010: Why farming will never be the same again.” This, he said, had made him wonder whether private equity “will ever be the same again?”
There will always be three constants, he said: capital, private companies and some form of fund management. While these three constants alter slightly, the shifting variables will favour “the chameleons”: the “smart guys” of private equity.
Success, however, will be conditional on rebuilding trust between various parties: investors, banks, company management teams, advisors and outside stakeholders (regulators, the public and the media).
The European Private Equity and Venture Capital Association, the trade body which Singer chaired in 1993, must take the lead in rebuilding trust with the outside stakeholders, warned Singer, and not become a “one-trick pony”, focused only on the ongoing European regulatory debate.
Singer also called on the limited partners to play their part in moving the industry forward. LPs must, he said, “help Darwinism apply”, meaning that managers in the bottom quartile – which fail to outperform the public markets – should not be able to raise another fund.
Singer ended his speech with a prediction that trust will be restored, and “there will be a happy ending”.