There's no denying that private equity investment levels have fallen. Recent data from accountancy firm BDO Stoy Hayward showed that the number of deals done in the third quarter of 2008 was 41 percent lower than the same period last year.
And while there have been predictions that decreased deal flow will lead to major staff reductions, the private equity industry has so far avoided the stark cuts seen in the financial services sector.
Far from laying staff off, many private equity firms are still expanding, with the banking sector providing a steady stream of talent. “We are seeing absolutely tons of investment bankers looking for jobs in private equity,” said Gail McManus, managing director of Private Equity Recruitment, who confirmed that any job cuts in the private equity industry have so far been “fragmented and inconsistent”.
In a recent conversation with UK mid-market firm Bowmark Capital, managing partner Charles Ind highlighted a different personnel problem facing many private equity firms: How do you keep talented dealmakers engaged, when there are no deals to be done?
“It’s always more of a challenge maintaining momentum when things are quiet, because talented, motivated individuals are obviously keen to do deals,” he said.
In this situation there may to be one unexpected winner. The venture philanthropy community relies on cash donations and pro bono business expertise, primarily sourced from private equity firms and their advisors. They apply private equity investment principles to help charities and other social enterprises focus, grow and secure more funding. With a small army of private equity professionals being told by their bosses to hold back investment activity, there is a wealth of expertise awaiting deployment.
Daniela Barone Soares is chief executive of the Impetus Trust, a venture philanthropy firm which recently celebrated the first graduation of a charity from its portfolio. UK-based charity Speaking Up received around £400,000 (€478,000; $597,000) cash and £216,000-worth of mentoring expertise from Impetus during the four-year investment. It now helps six times as many people with learning difficulties, disabilities and mental health problems to speak up for themselves.
Soares reports a rapid increase in talented investment professionals recently looking to volunteer their time. “We are seeing two effects of the financial crisis,” she said. “One is that professionals are looking for some meaning in life beyond their ordinary work. The second is that both existing and new contacts are approaching us saying 'Our people are not utilised, what projects have you got on?'”
Increasing numbers of firms and individuals are looking at venture philanthropy as way of keeping their commercial skills sharp as well as giving something back to the community.
Of all the silver linings that professionals point to during these cloudy times – great buying opportunities ahead, a return to operational “value-add”, a much-needed pricing correction – this is one that surely won't be met with any scepticism or cynicism.