The year ahead

Welcome to 2003. The new year is a month old, and few private equity practitioners will have any doubt that it has some tough challenges for the industry in store. In early January, in its first editorial leader this year, our sister publication PrivateEquityOnline.com set out some of the main themes our journalists believe will make an impact in the international private equity markets over the course of the coming months. Here is the list.

•Buyouts will continue to dominate global private equity – and will drive much M&A activity. The roughly $80bn of deals in 2002 will be nearer $120bn in 2003. And PTPs will play an important role in this: more disillusioned public companies will embrace a private equity backed exit from the stock market.

•Fund raising will see some casualties (including former titans raising amounts far less than in the past) but specialist funds will bloom as investors seek to build a diversified PE allocation.

•Institutions looking to deploy large amounts of capital into the asset class over the next 12 months will struggle to do so. ?We've done an analysis of funds coming to market this year, and there isn't much,? said a European investor who aims to invest €1bn in the asset class per year.

•More investors will spend more time actively managing their PE allocations: meaning that liquidity will officially arrive. Secondary funds will help drive this alongside more novel synthetics and securitisations for the more adventurous.

•The first serious, independent research notes on private equity firms and particular funds are published. Their structure, track record, portfolio and performance are all detailed as investors look for familiar forms of guidance. After early resistance, most private equity firms accept this is part of what it takes to be seen as orthodox.

•The funds of funds industry in Europe will have a traumatic adolescence: some FoFs will disappear, others will merge as others struggle to deliver substantive returns from pallid portfolios.

•VC will continue to avoid the limelight: there will be sporadic talk of great deals being done but no one will want to talk about returns nor timing – although ?long term? will be a favoured adjective.

•VC will continue to avoid the limelight: there will be sporadic talk of great deals being done but no one will want to talk about returns nor timing – although ?long term? will be a favoured adjective.

•The love affair investment banks have had with in-house PE funds will be officially dead: some portfolios will be sold on, others MBO'd and capital redeployed elsewhere as staff scatter.

•The IPO market will make a stuttering return: US-led thanks to some landmark listings (such as Google) there will be a cautious return to the public markets in Q4. But many will remain nervous.

Such nervousness is going to be a widespread sentiment this year, in no small part fuelled by spreading political uncertaintly. But there are also reasons to be cheerful. We hope that in eleven months time, we will be looking back on 2003 knowing that the market's recovery has finally got underway.

Happy new year.