Where it all began

Tourists who flock to Venice will have many reasons for doing so. They may be exploring the famous canals by gondola, staring in awe at the magnificent St Mark's Basilica, or perhaps marvelling at the view from atop the Rialto Bridge. It is likely that few will travel there to pay homage to the roots of the private equity limited partnership.

And yet, according to research from Austrian private equity professional Hans Lovrek, Venice is due this unlikely accolade. Lovrek, who advises Austrian investors on their allocations to the asset class, is currently researching a thesis that compares modern private equity partnerships to their medieval predecessors. In doing so, he has discovered that today's LP bears an uncanny resemblance to the commenda contracts by which Venetians funded sea voyages in the 12th and 13th centuries in order to enlarge their sphere of influence in the eastern Mediterranean.

He found that risks to the commenda came in the form of “an insecure political environment, fluctuating market prices and exchange rates”. Sound familiar? He also notes that “one successful voyage could make several peoples' fortune”, thus confirming that the “home-run” phenomenon has deep historical roots.

The concepts of co-investment and diversification are also, it appears, far from modern. A merchant banker would apparently corral a number of families to cofinance ships, thereby creating the ability to “spread his own funds over several projects”.

Furthermore, the asset class was far-reaching: so popular was it that “the participation of more humble people like orphans, widows, nuns, priest or craftsmen was not uncommon”. This effectively created something of a fundraising boom. And perhaps that's where the comparisons with today end.

QUOTABLES
“Hedge funds and private equity were the poster-boys of the new finance. They surfed the wave of abundant liquidity and cheap credit. Now as the financial system crumbles, they are easy scapegoats for more deep-rooted problems.”

Charlie McCreevy, European Commissioner for internal market and services, in his opening speech to the EC Conference on Private Equity & Hedge Funds in Brussels

“We are fundraising right now, and we are optimistic that we are going to be able to raise a considerable [amount] – actually, the largest fund ever raised for Latin America. Our previous fund was the largest fund at $1.3 billion and we expect [Fund V] should be beyond that.”

São Paulo-based GP Investments' senior partner Octavio Lopes in a podcast with the University of Pennsylvania's Wharton School

“We put a tremendous effort into providing all the relevant materials to the MOC to ensure that they had all the information available and understood the transaction”

Muhtar Kent, president and chief executive of the Coca-Cola Company, responding to the decision of China's Ministry of Commerce to block his firm's planned $2.4 billion takeover of Hui Yuan Juice, a Chinese juice maker part-owned by private equity firm Warburg Pincus

“For as long as I have been in this business, there has been a liquidity bubble every decade. And there will be another one after today's. Cheap debt is simply seductive, and everyone is complicit on the upside.”

Patricia Cloherty, founder of Russia-focused Delta Capital Partners and a 40-year private equity veteran, speaking at PEI's Middle East Forum in Dubai.