Friday, October 22, 2010

The Buyout Gospel According to Rubenstein

Tom Fairless, of Financial News, reports:
David Rubenstein, co-founder and traveling salesman for Carlyle Group, is fond of firing off lists of emerging trends at industry conferences. His latest predictions were made at a speech at the SuperReturn Middle East conference in Abu Dhabi this week.
1) The private-equity industry is shrinking. Deal and fund sizes will be smaller, leverage will remain below its peak and there will be fewer club deals. Large investors will give money to fewer firms. The jury is still out on whether the megadeals and funds from the boom years will yield strong returns.
2) But investor interest is returning. They have concluded that private equity withstood the downturn better than almost any asset class, partly because of its illiquidity, which protected investors from panic sales.
3) Return expectations have fallen. Investors have become more realistic.
4) Investors also have more clout and will demand and receive greater transparency from buyout firms and a better alignment of interests, particularly on management fees. Guidelines issued by the Institutional Limited Partners Association, a trade body for investors in private equity, will have a considerable impact.
5) Big investors will demand preferential treatment. They will seek lower fees and higher hurdle rates.
6) Governments want to get more involved. They will seek to protect stakeholders with new regulations such as the US Volcker Rule, which will deter big banks from sponsoring private equity funds.
7) The industry has gone mainstream. Buyout firms and their investors have deepened relations with government, media, consumer and environmental groups, rather than focusing exclusively on returns.
8) Brand value is increasing. Firms will start to advertise to build their brand names and aid fund-raising.
9) Global reach is increasingly important….
10) …particularly exposure to emerging markets. China is in a league of its own among emerging markets and will attract enormous amount of private-equity capital, while India and Brazil are not far behind. The Middle East and Africa will become increasingly attractive.

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