Editor's letter

Private equity is a long-term game – or is it? Newcomers to the asset class marvelling at the streams of cash flowing back to limited partners might be forgiven for getting the wrong end of the stick.

If as an investor you entered private equity today without any prior knowledge, you could easily draw some misguided conclusions. For instance, and importantly, the J-curve wouldn't scare you. For the last three years, international buyouts funds have been paying out more capital than they have drawn, an astonishing fact made possible by the capital markets' eagerness to support leveraged recapitalisations of portfolio companies.

As a result, short-term performance figures have gone through the roof, a phenomenon we explore in this month's cover story on p. 45. The numbers look awesome, and limited partners are grateful and delighted. But: those investors who know private equity well do not expect the trend to last. As soon as the debt markets tighten, private equity firms will need to find other tricks to keep the cash flowing. At that point, in all probability, some of private equity's once much more visible long-term characteristics as an asset class will become clear once again.

Investors looking to master this future challenge may be tempted to mimic the investment decisions David Swensen at Yale University will be making at that time. In growing Yale's endowment, the world's most respected limited partner has achieved tremendous results from incorporating big chunks of private equity into his investment portfolio. Many have looked to his record as a route to success, but attempts to replicate the Yale story haven't really worked for anyone. On p. 10, David Snow explains why.

Whatever drama lies in store for Swensen and anyone else in private equity, having reliable legal advisors by one's side will be essential. As a tip of our hat to the legal professionals who lay the groundwork for private equity activity around the world, we have put together a list of influential lawyers who advise private equity clients. The list was initiated by suggestions from our contacts in the industry, and the final cut was made by the editorial staff of PEI. Many of our readers will be surprised at not seeing their own favourite legal eagles on the list. But we hope you feel that the professionals that are profiled are top-tier contributors to innovation in private equity, as well as experts at keeping GP noses clean.

Enjoy the issue.

Philip Borel

Managing Editor