Private Equity at a Crossroads

Private Equity (PE) has always been a fast-evolving industry, and 2014 is proving no exception. Early forecasts for U.S. growth in 2014 were quickly tamped down in the first couple of months of the year after fourth-quarter 2013 GDP numbers came in lower than expected (a 2.4% annualized rate versus the 3.2% forecast). With once-stalwart emerging market economies now sputtering, hopes have been dampened some for new PE investments, and emerging markets will not support many portfolio company sales.

But speakers at the Wharton Private Equity & Venture Capital Conference 2014 said that weaker-than-expected economic growth may at least have the virtue of uncovering some diamonds in the rough. Uncertain growth is also causing investors to get choosier about their PE investments. Expect money to gravitate toward large firms with solid track records, and also towards niche firms that offer a unique approach. Firms in the middle could get squeezed.

This edition of the Wharton Private Equity Review looks at these issues and also considers developments in venture capital, where panelists said there are fewer attractive late-stage firms. One company, meanwhile, is pushing the bounds of innovation by creating a “private” social media network so its 200 portfolio companies can share knowledge and increase their value.


Emerging Market Slowdown Hits Private Equity, but Improves Pricing

Slower emerging market economic growth has dampened private equity. But the receding tide of investment is also uncovering some hidden values. And with PE firms unable to supercharge returns through leverage in those countries, the focus is turning towards improving operations and enhancing revenues in portfolio firms.

The Evolution of a Private Equity Leader

Investors have become choosier about their private equity investments. As a result, expect more money to gravitate toward large private equity firms with solid track records, and towards niche firms offering a unique approach, says Joshua Harris, co-founder and chief investment officer of Apollo Global Management. Firms in the middle could get squeezed. He also discusses the evolution of his company.

Venturing into ‘Private’ Social Media

Josh Kopelman, managing partner of First Round Capital, a venture capital firm, says a key strategy at his company is to use a private form of social media to create knowledge sharing that leads to new value. If two minds are better than one, then 60, 100 or 200 are even better. First Round Capital has developed a non-public network to connect members of its 200 portfolio firms.

Attractive Late-stage Firms Grow Scarce for Venture Capital

Venture capitalists face slimmer pickings and higher prices in 2014 as competition to buy good late-stage companies is raising the bar. Prices for firms that once might have returned six to seven times the investment now may bring just one or two times, notes Jason Trevisan of Polaris Partners. Cara Nakamura, principal of the Princeton University Investment Company, calls prices “terrible.”

    Sign up for the weekly Knowledge@Wharton e-mail newsletter, offering business leaders cutting-edge research and ideas from Wharton faculty and other experts.