Keynote address: The resurgence of private equity on the world stage

By sarahh / 10 June 2010 / 0 comments

Kicking off the conference, Diego Serebrisky, Managing Director at Advent International, shared his sharp view on the PE industry.

What has happened in the PE industry:

PE is a cyclical business and the LBO peak in 2007 was extreme in comparison to the previous ones
Financing for LBO evaporated and global buyout activity sank in all regions
Fundraising activity was also impacted by the global crisis. A significant portion of the US$216 billion closed in 2009 was actually committed in 2008
The denominator effect reduced LPs headroom in their PE allocation. Institutional investors would not commit in new funds since their allocation to PE jumped to levels beyond their target asset allocation levels
Fundraising has become a longer process, increasing the average time from 9.5 months in 2004 to 18.4 months in 2009
Short term PE fund returns took a hit with the global crisis and the performance of all type of funds were similar, but the real estate funds were more severely affected
But the PE asset class is still attractive and compared with public equities, PE outperformed

What is happening now:

The investor sentiment towards the asset class has improved in 2010
Good signs of recovery in deal activity of global PE
In the last 12 months, investments and IPO exits increased significantly
An unprecedented level of dry powder has to be invested or the GPs will lose their commitments
LPs are giving more thought to portfolio construction (less appetite for risk, more strict due diligence, demand for better reporting)
LPs expect concessions on fees
Regulation risk has increased (Proposed EU Commission’s Alternative Investment Fund Managers directive, Tax increase in U.S. for fund managers)
The majority of LPs agrees with the ILPA Principles

What is happening in Latam:

LPs interest in Latin America is increasing and Brazil is now ranked 2^nd only to China (3^rd is India)
New investments will occur in the next 2 years
Latam still attracts less investments relative to other regions such as Asia
Advent’s 5^th Latam fund of $1.65B represents 75% of the amount raised last year
PE growth potential is huge evidenced by the low overall PE penetration in terms of GDP