Friday Letter: Countdown to 2008

Throughout December, PEO will be featuring daily predictions for the year ahead from some of the industry’s biggest names. After week one, some important themes have already emerged.  

We kicked off the Countdown to 2008 with Philip Yea, chief executive of 3i, Europe’s largest listed firm. He set the tone for a more challenging 2008, but he was also still optimistic that buying opportunities would emerge once vendors become acclimatised to the new financial order.

However, he warned: “It is unlikely to be a buyer’s market, competition for the best deals will remain intense and differentiation will continue to be key.”

Competition is also preying on the mind of Antonio Bonchristiano, managing partner of emerging markets trailblazer GP Investments in Sao Paolo. He told us: “We expect some changes over the next couple of years with the likely arrival of larger international private equity firms and increased competition for assets driving up entry prices.”  He also stressed that the world’s economic outlook was uncertain and a downturn could hit Brazil's growth.

Uncertainty rarely seems to trouble another of the PEO Countdown’s contributors. Jon Moulton. Alchemy Partners’ bearish founder did not mince his words: “Our distressed debt fund will have a great year in 2008 – and many people will enjoy the difficulties the mega funds will have both funding new deals and keeping their highly leveraged progeny afloat.” The bubble is burst in other words, and Moulton’s glee was barely contained.

Yea sees the downturn as an opportunity for private equity to prove its mettle. He wrote: “2008 will certainly be a time for the industry to demonstrate the strength and performance of the model, and to remain on the front foot in terms of communication.”

Mounir Guen, chief executive of placement agent MVision, agreed: “The industry must continue to address its public image and the responsibilities associated with its visibility.”

Guen also anticipates a correction in 2008 after a year when private equity pushed “the frontier further, deeper and broader, tilting to more operational ownership.” He said the banks would need to clear their mistakes and adjust accordingly, resulting in a reduction in risk and a more cautious approach to debt.

However, Guen also sees good reasons to be cheerful: Europe will continue to offer great private equity opportunities with many investors focussing on increasing allocations in regional, local and venture partnerships. Emerging markets will deepen as activity and experience grows, generating consistent portfolio performance. And the US market will be as busy as ever.

Mario Giannini, chief executive of investment adviser Hamilton Lane, is also optimistic. He believes private equity will climb a “wall of worry” in 2008. But he said: “Investments and results will surprise everyone predicting the end of markets, mankind and private equity, although perhaps not in that order.

No one in the Countdown has so are predicted the end of mankind, but there are three more weeks left to run. Click here to read the PEO Countdown to 2008 so far – and make sure you pay the site a daily visit up until and including 24 December.

Also don't forget the polls are open for the Private Equity International Awards 2007, the only awards voted for the industry by the industry.

Click here to make your vote count. Many thanks!