Published: July 16, 2007, European Pensions News
Private equity: fighting back
Private equity has come under fire in recent weeks. European Pensions gives the experts an opportunity to defend their asset class
Question: Criticisms have been voiced about the “asset stripping” nature of some private equity transactions, sometimes leading to a poorer deal for pension scheme members. But is this likely to make a dent in this booming market? Should institutional investors be concerned?
Rainer Ender, managing director at Adveq:
The view that private equity transactions are linked with asset stripping is a widely held misconception. The vast majority of buyout transactions are based around advocating growth, and consequently there is a positive impact not just for investments, but also on job creation and the economy in general.
Buyout managers not only play a role in reshaping the industries they are focused on, they also help to drive increased efficiencies. Among other methods, this can be achieved through the buying and selling of divisions or parts of companies, often a key catalyst in the process of creating industry champions: businesses that are fit to thrive in a globalised and competitive marketplace. Often buyout managers help companies to capture the market share required to increase their chances of becoming leaders within their industry. In this way, institutional investors stand to benefit from the active role of buyout managers.
Buyout deals are increasingly involved in today’s M&A market, participating in around 25 per cent of transactions. In today’s booming private equity market, successfully reaching growth targets for investee companies is an extremely important objective, enabling them, in turn, to maximise returns for their investors. The strong performance levels of buyout managers over the past four years cannot be expected to continue indefinitely. A correction will almost certainly occur alongside any correction in capital markets – whether on the debt or public equity side. However, institutional investors need to remember that the role of private equity is to grow businesses and this will ultimately benefit them and their members.
