The search for certainty

The year may have changed, but many of the same old uncertainties remain. Help us identify who in the industry dealt with these most successfully in 2012.

It's a brand new year, so let's start on an optimistic note. The US government decided at the eleventh hour not to send its economy over the edge of the so-called fiscal cliff – and that should be good news both for the US and for the rest of the world, at least in the short term.

The local buyout industry is likely to be an early beneficiary. The fourth quarter of 2012 was a dismal one for private equity M&A in the US, with deal volumes down almost 50 percent on the equivalent figure for 2011. But now the can has been kicked a little further down the road, the hope is that the new year will see a sharp rise in deal activity.                                                                         

“Financial transactions, the use of leverage and things like that just weren’t going to happen until the fiscal cliff came to a head,” Greg Braca, head of corporate and specialty banking at TD Bank, told Private Equity International this week. Now, he suggests, people will “start putting some liquidity to work”.

Friday Letter

It helps that carried interest escaped the tax hikes announced as part of the last-minute fiscal compact. This reprieve is probably just a temporary one: the current administration seems determined to 'fix' this 'loophole', so it will almost certainly revisit the issue at some point in 2013 – and the chances are that industry practitioners will end up paying more tax as a result. We may be facing an increasingly uncertain world in 2013, but as Benjamin Franklin famously pointed out, taxes are one of the few things we can always rely on. Still, at least the day of reckoning has been postponed for a while longer, which should encourage a few more GPs to get deals done in the early part of this year.

And, this being January, there’s one other certainty to add to Ole' Ben’s list: that the private equity industry is currently voting in droves to recognise the stand-out performers of 2012, courtesy of the annual PEI awards.

There are some interesting races developing, in all three regions.

2012 was a horrible year for Bain Capital, whose public image took a battering during Mitt Romney's presidential run. But the US-based group is currently leading the way in the 'large cap group of the year in Asia' category, and is second in the same category in North America – suggesting that its peers believe it has done a pretty good job of weathering the storm. That said, the Asian category remains too close to call, with US group KKR and local firms CITIC and Hony all still in with a chance – while in North America, Bain remains well behind the current runaway leader, The Carlyle Group.

In Europe, EQT and Advent are currently out in front in the large and mid-cap categories respectively. But perhaps the most interesting category here is 'LP of the year'. The European Bank for Reconstruction and Development has taken a surprise early lead in the voting, but last year's winner ATP PEP and Oxford University Endowment Management – whose CIO Sandra Robertson made perhaps the most significant LP intervention of 2012 – are snapping at its heels. It's a similar story in Asia: GIC leads the way in the LP category, but its three rivals are not far behind.

'Exit of the year' also looks like a hard-fought category – particularly in Europe, where just a few votes separate current leader Alliance Boots from the likes of Starbev, Ziggo and BSN Medical.

There’s now only one week of voting left. So if you're just back from holiday (hopefully refreshed and raring to go) and you haven’t had your say yet, why not take 10 minutes to champion your favourites? One thing is absolutely certain: nobody is in a better place to judge who the winners should be.

And finally… Our new sister title, Private Debt Investor, will be going live in the first quarter of 2013. For a snapshot of its first issue, please click HERE. You’ll be able to download the inaugural PDI roundtable in which leading professionals discuss the role private debt has to play in financing private equity, infrastructure and real estate deals, and also why it’s deserving of a place in investors’ portfolios.