Vestar founder: Private equity overcrowded

Despite $385bn in dry powder, a weak exit environment does not bode well for private equity managers stuck with unrealised, pre-crisis assets, according to Vestar founder Norman Alpert.

The private equity market is too crowded for its own good, Vestar Capital Partners co-founder and managing director Norman Alpert said at the Yale School of Management 2011 Private Equity Conference last week.

Faced with a massive capital overhang, an impending “wall” of debt that will mature in the next few years, longer gestation periods for exits and an increasingly savvy limited partner base, the number of private equity firms on the market needs to fall, Alpert said.

“In all honesty, we need less firms and less capital. The business got too big,” he said.

Alpert’s comments were echoed by other members of the panel, including Irving Place Capital senior managing director Rick Perkal, who said: “My life would be a lot easier if there were a lot less private equity firms,” which drew laughs from the audience.

Alpert’s comments mirror recent projections from placement agent Triago’s quarterly report, which indicated that recent market trends could force one-quarter to one-half of all GPs from the market in the next five years as limited partners consolidate their relationships with fewer fund managers.

A rough exit environment has exacerbated the problem. Net asset values for private equity funds fell by 3 percent to 5 percent in the three months through September, according to Triago, creating difficulty for firms hoping to realise impressive returns on pre-crisis investments before returning to market.

“You can only return [capital] opportunistically. And you can’t just snap your fingers and make a sale. There’s a six to nine month gestation period,” Alpert said.

Vestar, which Alpert founded in 1988 with six other former members of The First Boston Corporation’s management buyout group, has done some drawing down of its own recently, shuttering offices in Munich, Paris and Milan in an effort to refocus its strategy on the US mid-market. The firm has exited all but two of its European portfolio companies, according to a statement.