Private equity risk appetite is beginning to build after months of extreme caution, say industry players, who see opportunities even as the economic climate appears bleak.
Private equity risk appetite is beginning to build after months of extreme caution, say industry players, who see opportunities even as the economic climate appears bleak.
“One of the truths about private equity is the best time to invest is during the downturn,” said Simon Walker, chief executive of the British Venture Capital Association (BCVA), at the Reuters Hedge Funds and Private Equity Summit in London.
The views come a day after Larry Kantor, head of research at Barclays Capital, said it was time for investors to be more aggressive.
“Expectations have been driven down to extremes, and the beginnings of a global economic recovery are evident,” Kantor said.
Not all participants in the summit agreed. Colin McLean of SVM Asset Management thought the present market rally could not be sustained.
“I don’t think what we’re seeing just now, as a rally, is different than the four or five we’ve seen in the last year. I think the overall economic background will see us back down at the lows of last year,” McLean said.
Coming Off the Sidelines
Private equity participants expected an increase in both risk appetite and transaction volumes sometime in the future, in spite of investor caution and bad economic news.
“A lot of people are out meeting potential targets, but these aren’t potential targets today, these are potential targets in six months, nine months, a year, a year and a half,” said David Giampaolo of Pi Capital.
“So they are just starting the romance, starting to get sector visibility and knowledge. There is a lot of investment in the future being made today. What there is not is a lot of activity today to transact today,” Giampaolo added.
After experiencing one of the hardest years on record in 2008, private equity is ready to consider investing again, the summit was told.
Funds are sitting on a trillion dollars worldwide, according to the BVCA, and some of these are looking to grab opportunities ahead of other investors.
“As a private equity investor, we don’t have to wait for the economy to recover first before we put in the money, that would be too late,” said Frank Tang of Fountainvest Partners in Hong Kong.
“This is exactly the time that private equity investors can play a role, when perhaps there are certain public market dislocations ... I think the next two, three, four years will really be a golden period for us,” Tang said.
However, the multi-billion dollar buyout deals seen during the credit boom will not be seen again as banks are no longer willing to back deals with leverage.
Instead, many investors are looking to pick up outstanding debt at bargain prices, or buying secondary positions in other buyout funds, though rarely in large volumes.
“In the distressed space, we think there will be opportunities to back selectively in Europe’s funds either in equity turnaround or in distressed equity strategies,” said Billy Gilmore of Scottish Widows Investment Partnership (SWIP), a division of Lloyds Banking Group.
Others are looking beyond the ravaged economies of the United States and Europe, weighing up the risks of investing in emerging markets, many of whom continue to record positive GDP figures.
“I believe that for different reasons the emerging markets are going to play a greater role on the other side of this crisis ... those markets matter to me, and I think they need to matter to more investors, but there are risks associated (with them),” Giampaolo said.
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Private Equity Starts Seeing Bear Market Opportunities
Reuters
26 March 2009
Private equity risk appetite is beginning to build after months of extreme caution, say industry players, who see opportunities even as the economic climate appears bleak.
“One of the truths about private equity is the best time to invest is during the downturn,” said Simon Walker, chief executive of the British Venture Capital Association (BCVA), at the Reuters Hedge Funds and Private Equity Summit in London.
The views come a day after Larry Kantor, head of research at Barclays Capital, said it was time for investors to be more aggressive.
“Expectations have been driven down to extremes, and the beginnings of a global economic recovery are evident,” Kantor said.
Not all participants in the summit agreed. Colin McLean of SVM Asset Management thought the present market rally could not be sustained.
“I don’t think what we’re seeing just now, as a rally, is different than the four or five we’ve seen in the last year. I think the overall economic background will see us back down at the lows of last year,” McLean said.
Coming Off the Sidelines
Private equity participants expected an increase in both risk appetite and transaction volumes sometime in the future, in spite of investor caution and bad economic news.
“A lot of people are out meeting potential targets, but these aren’t potential targets today, these are potential targets in six months, nine months, a year, a year and a half,” said David Giampaolo of Pi Capital.
“So they are just starting the romance, starting to get sector visibility and knowledge. There is a lot of investment in the future being made today. What there is not is a lot of activity today to transact today,” Giampaolo added.
After experiencing one of the hardest years on record in 2008, private equity is ready to consider investing again, the summit was told.
Funds are sitting on a trillion dollars worldwide, according to the BVCA, and some of these are looking to grab opportunities ahead of other investors.
“As a private equity investor, we don’t have to wait for the economy to recover first before we put in the money, that would be too late,” said Frank Tang of Fountainvest Partners in Hong Kong.
“This is exactly the time that private equity investors can play a role, when perhaps there are certain public market dislocations ... I think the next two, three, four years will really be a golden period for us,” Tang said.
However, the multi-billion dollar buyout deals seen during the credit boom will not be seen again as banks are no longer willing to back deals with leverage.
Instead, many investors are looking to pick up outstanding debt at bargain prices, or buying secondary positions in other buyout funds, though rarely in large volumes.
“In the distressed space, we think there will be opportunities to back selectively in Europe’s funds either in equity turnaround or in distressed equity strategies,” said Billy Gilmore of Scottish Widows Investment Partnership (SWIP), a division of Lloyds Banking Group.
Others are looking beyond the ravaged economies of the United States and Europe, weighing up the risks of investing in emerging markets, many of whom continue to record positive GDP figures.
“I believe that for different reasons the emerging markets are going to play a greater role on the other side of this crisis ... those markets matter to me, and I think they need to matter to more investors, but there are risks associated (with them),” Giampaolo said.
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