What surprised you most in 2016?
“General Partner discipline. The last couple of years have been characterised by record amounts of capital distributed back to limited partners and very successful fundraisings by GPs. Yet, in general, GPs have shown discipline when making new investments, evidenced by lower-than-expected deal volume and increasing amounts of dry powder in the industry. GP behaviour seems to indicate a belief that we are near the end of the current market cycle.”
What’s the biggest challenge in 2017?
“Can Private Equity maintain that discipline? Do GPs eventually succumb to the ‘lower for longer’ (low growth, low interest rates) train of thinking and begin to rationalise paying record purchase price multiples for new investments? Does this come at the exact wrong time?”
Which are the most promising regions and strategies in 2017 and why?
“I think the US continues to offer an attractive risk-adjusted return relative to other geographies. However, given the strength of the US dollar relative to other currencies, long-term investors might look to allocate more to European and even Asian funds as a means of diversification.”
What’s your one piece of advice for GPs?
“Transparency! Take a longer term view of their relationship and partnership with LPs. GPs are increasingly becoming more aggressive around fund economics, sacrificing long-term relationships for short-term financial gain. Additionally, GPs should address succession issues now. GPs who fail to transition economics and ownership to younger generations are doomed to fail.”