Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Nouriel Roubini wikipedia , lookup
Production for use wikipedia , lookup
Economic democracy wikipedia , lookup
Global financial system wikipedia , lookup
Post–World War II economic expansion wikipedia , lookup
Economic growth wikipedia , lookup
Rostow's stages of growth wikipedia , lookup
Economic calculation problem wikipedia , lookup
Uneven and combined development wikipedia , lookup
Re-evaluating the PE model coming out of 2008 Prof. Luc Nijs Founder & Chairman Horizon Ltd Founder & Group CEO The Talitha Group Warsaw September 7-8, 2009 Buy-outs in the CEE – MarcusEvans 2009 Where to start? The trends Despite the market conditions EM PE raised $ 66,5 bio in 2008, a 12% rise Proportional share in total global PE fundraising raising for 5 years in a row now Relative decoupling & economic power shifting to (some) emerging markets is reinforced by current recession Cyclical recession became a structural one and the risk of L-shape recession is looming (cf. Ponzi economy) Inflationary pressures despite current deflation trend having the potential to cause another downward leg over the next 12-18 months Dynamics of the CEE region Debt-driven model to growth gone Erosion of financial infrastructure Fundraising per region Market Outlook Argumentation for EM proposition: Resilient growth Less use of leverage Remaining catch-up effect in the region sufficient to offset the loss of the debt-engine If not, GDP growth will be limited to productivity growth Labor-arbitrage as a strategy has lost most of its dynamics Investors stay committed…but… Some of the underlying fundamentals What about the converts… Market Outlook Argumentation for refusal of EM proposition: (Short-term) EM risk Lack of experience in EMs Only few quality GPs available in EMs Quantitative easing and systemic risk? Limited visibility of LT impact on economic fundamentals If you broaden you monetary base…. Some of the underlying fundamentals Av. risk premiums in EMs (%, 2008-2009) Institutional investor views: EM versus developed (December 2008) Institutional investor views: EM versus developed (April 2009) Portfolio allocation The dynamics of LT capital The need for LT capital is beyond doubt in every economy based sustainable fundamentals Patient capital is there to unleash human & business potential Has PE ignored some of its fundamental DNA Conflict of interest when engaged in multiple parts of the capital structure Going back to the core of being an ‘activist shareholder’ Semi-globalization = procession of Echternach PE penetration as an asset class Source: Goldman Sachs, EMPEA Portfolio exposure Reasons for expansion or continuation Source: EMPEA 2008 EM Private Equity performance Source: Cambridge Associates LLC & prop. research,: pooled end-to-end returns, net of fees, expenses and carried interest Impact on portfolio construction In 2008 about 1/3 of the total pool of LPs had some kind of exposure to EMs Portfolio weighting somewhere between 10-30% and total portfolio’s 3-5 % Do or die for LPs the next couple of years: capture trend lines of GDP growth etc. Systemic risk in Western markets are not reflected in risk premiums Source: Proprietary data Smoke & mirrors… BVCA and E&Y 2008 performance study So now what… If PE is an activist shareholders’ position than why have these funds been managed as investment vehicles Demonstrate inept to manage companies Focus on financial engineering Models have to change Fund structure Terms & conditions Exit modeling Valuation and transparency So now what…life after leverage Value creation/operational side Impact of average /holding periods Massive room for improvement of private capital formation Put capital to work But do they have the right ‘human capital in place’? What is considered important Survey institutional investors by BNY Mellon (May 2009) 1. Alignment of interests 2. Transparency 3. Performance 4. …. 5. …. Sunshine is the best disinfectant US seems to understand that..registration and info Europe does not …at least judging based on their April 30, 2009 proposal to manage the AIM industry Ill-thought through Politically compromised Creates barriers-to-entry Unnecessary conditions Blocking 3rd country managers/funds Erodes competitiveness of EU investors Team What is the DNA of your team? What is the set-up of the team? Locations? How is decision-making shared? How is the carry shared? Stability- How are you going to execute your strategy Is your team ready for the ‘new normal’ ..i.e. generating returns by improving operations and creating synergies rather than leverage Can your HC live up to that test? Team The HC rainmaker paradox Human Capital center of excellence Retention Change management Compliance Organizational Development Recruiting Sourcing Resource Development Terms & conditions Compensation 2 & 20 Alternatives? After the investment period? Imputing transaction fees by GP? Source: SJ Berwin AS 2009 Terms & conditions Compensation Carry vs. hurdle rate Subject to delay until clawback unlikely Source: SJ Berwin AS 2009 Fund structure Back to the open ended-structure? Relevance of ‘permanent capital’ Are we going to leave liquidity up to the ‘secondary market’ or contribute to that as an agent of change Herding behavior and GP mushrooming Regional versus country specific Regional specific strategies more-difficult to execute unless industry focus Macro-economics are going to drift among CEE countries more than in the past Relation between performance, investment strategy and in-house specialists Who do you want to be ? Align you personal interest with the dynamics of LT capital Mushrooming of GPs not necessary a blessing for the industry Contribute to value creation in a world where too much money is chasing too little opportunities Consider yourself an entrepreneur Let gravity have its way Conclusion Re-thinking of PE model is very much needed Live the talk… No right or wrong, no good or bad The LPs are at the centre of everything you do EMs have become a relative game CEE needs to show its bearings Remaining catch-up in CEE needs to be supported by economic and financial maturity and permanent efforts re innovation & technical enhancements PE needs to evolve towards being part of the mainstream finance environment Contact Riga Graduate School of Law Law & Finance Chair Strelnieku iela 4k-2 Riga LV-1010 LATVIA [email protected] Tel. +37167039230