Tough economic conditions in Europe and the United States, stiffer competition and tight credit continue to tamp down growth in the private equity (PE) industry. But successful firms are still uncovering opportunities. Today, that often involves longer-term investments with a focus on bringing new talent to under-managed portfolio companies. More PE firms are also looking to Asia for opportunities, including investments in small- and medium-sized enterprises. In this special report, based on the 2012 Wharton Private Equity and Venture Capital Conference, as well as additional research, Knowledge at Wharton looks at new directions in PE.
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Setting New Value-creation Strategies
When the private equity industry was young, opportunities were abundant, and many firms earned strong profits by picking up portfolio companies at bargain prices. Now that the industry has matured, competition is tougher — and bargains are harder to find. PE firms must look harder for unrealized potential that can create value for investors.
Leveraged Buyout Specialists Find Ways to Prosper amid Global Uncertainty
Tight money, heightened concerns about risks, the slow economic recovery in the United States and the debt crisis in Europe all make for a challenging landscape for private equity firms specializing in leveraged buyouts. But talented managers can find opportunities if they focus on operational improvements to the companies they acquire.
Big Potential, but Slow Growth for Now in Asian Private Equity
Fast-growing economies in Asia would appear to offer lucrative opportunities for private equity. But it’s not as simple as just jumping into the region wholesale, because conditions can vary significantly from country to country. The Korean government, for example, has worked hard to encourage private equity, while regulatory obstacles make it tough to do business in China, and economic problems hamper PE in Japan, where the industry is actually in decline.
Strategy, Top Management Talent Get New Emphasis in Private Equity
Fundraising for private equity firms has certainly been challenging, given the recent market turbulence and increasing scarcity of capital worldwide. At the annual Wharton Private Equity Partners dinner, members of a panel discussed fundraising trends and offered insight into what may lie ahead.
Asian SMEs Are Exciting Investments, but Street Smarts and Rolled-up Sleeves Are the New Must-haves
Private equity investments in Asia, while often profitable and still promising, are not easy pickings. According to Saumil Annegiri, Suhas Kulkarni and Stephen M. Sammut, authors of a study titled, SME Private Equity 2.0, small- and medium-sized enterprises are the sweet spot for PE investments in Asia. In order to succeed, though, investors will need to find the best deals through non-traditional channels. In addition, they will need street smarts and hands-on involvement in operations, while also paying attention to macro-economic trends.