We're living in the worst time economically for decades. Maybe even since the Great Depression. In fact, let's run with this: it's tempting to speculate, in these times of financial shock and awe, that the Great Depression was named prematurely. Perhaps it should have been labeled the Little Depression – the one before the Great Depression that came along 80 years later.
We're joking (at least we hope we are). The point is: listening to all the doomsday scenarios being conjured these days has become a little (ahem) depressing – so we hope you'll excuse the levity. Of course, we would be hard pushed to downplay the seismic significance of starred financial institutions toppling like a pack of cards. Nor should anyone attempt to. The sad cardboard box-clutching figures heading through the exit doors of now-bankrupt former employers illustrates very vividly the human cost of current market conditions.
But, crucially, we'd still contend there's a place for reasoned analysis over shrill alarmism.
In that spirit, this issue of PEI searches for some clues as to how private equity performance might pan out in the years ahead (see our Performance Special starting on p. 64). The good news (there's a rare thing) is that we find signs of encouragement in our analysis of historic numbers. Committing to private equity means setting capital aside for the long term on the assumption that cycles can be ridden out – and this gives managers plenty of flexibility about when and how to invest the money. Moreover, market dislocations normally bring in their train some highly compelling new investment opportunities – and there's no reason, one might argue, why this current period should be any different.
Not that private equity is immune from the chaos in financial markets. One of the by-products of a stock market meltdown is the so-called “denominator effect” which we examine on p. 44.
Furthermore, various potential factors could join forces to lead private equity down a path that ends in under-performance and investor disillusion – as outlined in David Snow's Stateside column on p. 12. As the same piece also makes clear, however, a much happier end result is possible too. Philip Borel's In Europe column on p. 24 also wrestles with the implications for private equity of recent events and draws generally encouraging conclusions.
We hope you enjoy the issue – and find room for optimism.