Issues Private Equity Firms Face Raising Capital

The main conference, the streamed sessions and even the conference’s speed networking event, in which general partners (GPs) were matched with limited partners (LPs), focused on important issues associated with private equity firms raising capital.


12 April 2011

At the end of February, on a dreary and drizzly Monday morning, I travelled from London to Berlin. Among my fellow British Airways passengers was Bob Geldof. For those who don’t know him, Bob Geldof started his career in the late 1970s as the lead singer of the Irish rock band, The Boomtown Rats, best known for the hit ‘I don’t like Mondays’, and spearheaded the super-concert Live Aid and Live 8 concerts. Apparently, he was heading to Berlin for a special performance at the Asphalt Club.

However, Germany’s music capital was not just host to pop star Bob Geldof but it was also hosting SuperReturn International 2011, the world’s largest private equity and venture capital event. In its 13th year, the conference attracted over 1300 private equity professionals, to the InterContinental Hotel.

Super Return International 2011

Sponsored this year by, amongst others, Intralinks, J.P. Morgan, FTI Consulting and UBS, the conference focused on fundraising. This was reflected by the delegates present at the event, the majority came from Investor Relation teams, the individuals responsible for raising a firm’s funds. The main conference, the streamed sessions and even the conference’s speed networking event, in which general partners (GPs) were matched with limited partners (LPs), focused on important issues associated with private equity firms raising capital.

Some of Europe’s largest LPs warned they would reduce the number of GPs they were planning to invest with. HarbourVest, Pantheon and SL Capital advised that investors would put in place a much more rigorous selection process before deciding where to invest. Guy Hands, chairman and chief investment officer of Terra Firma, explained that GPs will reduce fund sizes and look for smaller deals to produce acceptable returns. He said: “It is going to be a less glamorous time for private equity firms and returns will be in the mid-teens, not 20% to 25% as we have seen in the past”. Kathleen Bacon, managing partner at HarbourVest agreed: “I don’t think there will be a huge swathe of GPs that will disappear but certain GPs will raise smaller funds or delay fundraising.”

LPs face their own challenges too. According to Josh Lerner, a professor from Harvard Business School, investors face three challenges: liquidity concerns, risk concerns and unrealistic fiscal policy. In view of this, investors are rethinking their strategies. Lerner said investors will communicate more often with their fund managers and will more diligently research firms before investing with them.

Finally, David Rubenstein, founder and managing director of Carlyle, explained what he called “known unknowns”, the factors that private equity investors know they don’t know. They include the turmoil in the Middle East, the debt crisis in the United States and social media. He said: “We don’t know the full impact of social media on private equity. But it’s very hard to believe that the Facebook revolution can change the world and not impact private equity.” He continued: “Private equity cannot operate alone. I think there will be some impact of social networking on private equity, but I just don’t know what it will be this year.”

So, SuperReturn International 2011 was an excellent event with good content, a healthy attendance rate and plenty to take away and consider. It seems Mondays aren’t that bad after all and can lead to a very interesting week! Highlights from the event can be viewed here.