Internal re-engineering

A quick skim through this issue provides plenty of evidence that the private equity industry is maturing fast. Its size, diversity and importance are perhaps relative givens by now but it is arguably less often assumed that the asset class is capable of what could be dubbed ?internal re-engineering.?

This is not meant to imply that there's something awry within private equity's inner workings so much as a means to describe how parts of the industry can change shape and character when necessary.

Our cover story on captive private equity firms is a case in point. Look back ten years and you would find pretty much every medium as well as large investment-banking group keenly growing an in-house private equity group. The appeal of not simply earning the fees on the transactions but benefiting from the exit upside attached to the underlying companies seemed obvious. Cut to today and the results of the bank's drive into private equity investing are less than spectacular: and many have learnt, to themselves and their shareholders cost, that private equity has become much more than smart leverage and a rising stock market.

Another part of the private equity industry that is re-engineering itself is the Fund of Funds (FoF) market. Here a similar charge by eager opportunists meant that this once small community passed saturation point and as result is now changing shape. The total volume of capital flowing into FoFs is still increasing but the distribution of this and the profile of those succeeding is changing markedly.

Although this capacity for internal re-engineering is certainly not unique to private equity, the instances of how this process is taking place within the asset class are further evidence that this is a grown-up industry.

Philip Borel

Managing Editor