The world has changed for private equity
Investors are beginning to speak out about their concerns for their investment in private equity. Since the financial crisis hit, investors have been watching with growing concern as to the impact of the crisis on private equity. Like everyone else they are beginning to ask questions about fees and returns. The next two years will be difficult.
“Between 50 and 200 private equity-owned companies are in danger of breaching their banking covenants before the end of the year, raising the specter of mass bankruptcies and thousands of job losses.”
The Observer (UK) Sept 2008
Consensus from investor’s on private equity were expressed during the November 2008 Super Investors conference held in Paris.
``The world has changed,'' Permira Advisers LLP's co- managing partner Kurt Björklund told investors at the Super Investor conference in Paris yesterday. ``The next 18-to-24 months are going to be tough, for the industry, for portfolios and for deals. The ability to raise debt is close to zero.''
Permira's Bjorklund Sees `Tough' Two Years for LBOs-Bloomberg.com
UNI Global Union is concerned about how private equity will handle decisions on the portfolio companies they own. How will they weather the storm? What is the impact of declining stock market values and returns? Does it seem fair to apply the 2 and 20 rule ie: 2% management fee and keeping 20% of the profits made from selling investments? Will this mean closures and lost jobs? Will this mean cutting of wages or other working conditions? Pension fund investors are now speaking up on this also.
“Wim Borgdorff, managing partner of AlpInvest Partners NV, which invests on behalf of more than 4.3 million Dutch workers and is also one of Permira's biggest investors. ``As investors, our focus is on what's already outstanding. We need to spend time and effort on portfolios,'‘
Bloomberg.com
UNI has faced mounting requests from affiliates for what questions should be put to pension funds investing in private equity. Hence pension funds as major investors in private equity will be the first point of call and it’s a complex situation. As custodians of workers retirement savings, pension funds have a duty to focus on returns on investment and yet those assessments will also lead to a consideration of wider effects on communities as a whole. This is why UNI has worked on a set of issues for workers to consider in the first instance to assess the risks faced by the pension fund.