Private equity fundraising might be in the dumps, investors more demanding and existing funds almost out of investment time, but all in all private equity's prospects are better than last year. At least that's what attendees were told at the Private Equity Analyst Conference at the Waldorf Astoria Hotel in New York Sept. 27-29.
Those attending were mainly service providers, a small army of reporters from the financial press, a sampling of fund managers and a scattering of investors. They were treated to numerous panel discussions and break-out sessions, on fundraising, the secondary markets, regulatory reform and investment opportunities.
In one of the first sessions of the conference, on the topic of what it will take for the industry to find success, one panelist bemoaned the private equity business' image problems.
Private equity executives have not done a good job with the industry's image, said Kevin J. Conway, managing partner, Clayton, Dubilier & Rice LLC.
Also speaking on the panel were Jeffrey H. Aronson, managing principal, Centerbridge Partners LP; Jeff Horing, managing director, Insight Venture Partners; and Michael W. Michelson, member of KKR & Co.
As a way of tackling the image issue, Mr. Conway announced that one of his firm's founders, Joseph Rice, has set up a private equity institute at the Brookings Institution to research positive contributions of the industry.
Contributing to the image problem is how private equity firms are a bit too private, Mr. Michelson noted.
For too long, industry executives viewed what private equity funds did as private, he said: “It's up to us to communicate more with stakeholders,” investors and those in Washington.
The public views private equity investment as a way for companies to achieve “slashing and cutting” of costs, including jobs, he lamented. “We make the companies stronger. We invest in the companies. From the investment comes growth. The story private equity has not told is a positive one,” Mr. Michelson said.
Mr. Conway noted that the private equity initiative at the Brookings Institution aimed to provide lawmakers the “true facts.”
Without those facts, private equity executives run the risk that legislators and regulators will make policy decisions not based on the facts but on anomalies they read about in the press.
Another way private equity can improve its image, at least among investors, is by improving returns.
During the conference, attendees at various sessions responded to questions using devices resembling television remote-control units that were provided at the tables. When asked what private equity could do to improve its image, the largest percentage of panel attendees, 45%, indicated “generate strong returns.”
While the conference audience is not a statistically significant sample, the surveys do show “directionally” the views of the private equity industry, said Shawn G. Hessing, national managing partner, private equity, at accounting firm KPMG LLP, in an interview. KPMG, a conference co-sponsor, is collating and will release the results of the conference survey.
Venture capital is feeling the pain because returns, especially in early-stage funds are down.
Investors are saying “Where's the beef?” quipped Chris Douvos, co-head, private equity, The Investment Fund for Foundations during a panel discussion on “What's Next for The Private Equity Industry? Analyzing the Challenges.”
Also on the panel were Stephen Murray, president and CEO of CCMP Capital Advisors LLC; Alan J. Patricof, founder and managing director, Greycroft Partners LLC; and Julie G. Richardson, managing director, Providence Equity Partners.
Average investors are getting much smaller returns than they thought they would, the panelists agreed.
“Limited partners are starting to ask the question, ‘why bother?'” Mr. Douvos said.
A few speakers predicted that not all private equity firms will make it out of the downturn.
“There will be a shakeout in the industry in the next 12 to 18 months or more,” said Timothy Clark, partner in the law firm, Covington & Burling LLP during a breakout session on fundraising. Other panelists were C. Kevin Garland, partner, The Sterling Group, and Ross M. Posner, director, Allstate Investments, which commits more than $400 million a year in private equity.
But Mr. Clark, who works in Covington & Burling's fund formation practice, added: “Private equity worked. The model did work.”