Filed under: Private equity industry
A Financial News survey of 700 hedge fund managers found that the majority expect lower returns in 2008. Huge buyout firms are expected to be hurt the most relative to 2007.
This really shouldn’t come as a surprise, given the explosion of huge buyouts in 2006 and early 2007. But in a discussion of the survey over at Deal Journal, some survey participants cautioned against taking too negative a view. For one thing, negative expectations can be self-fulfilling. As one respondent put it in a comment to Deal Journal, “Leveraged buyout investors will get spooked by a ’sky is falling’ mentality . . .”
Another important issue is the general health of the private equity industry. Despite the broken mega-deals and the increasing cost of debt, private equity is still in good shape, with enormous reserves of capital to invest. Arthur Stewart, the head of a British hedge fund, summarized it this way: “Yes, the ability of the very largest buyout houses to finish mega-buyouts will be significantly reduced by inability to find large amounts of acquisition finance on acceptable terms . . . But the industry as a whole is in good health. Firms are raising funds and increasing their activity in a variety of sectors and geographical regions, especially emerging markets.”
So while returns will most likely be lower in 2008, the global economy offers plenty of opportunities.
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