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SRI 2012: Further reduction in buyout PE predicted 29 February 2012

The private equity buyout market will continue to shrink over the coming eight years, as investors demand more niche opportunities and greater control over their portfolio, a leading expert has warned.

However, this is likely to mean growth in sectors such as turnaround and distressed investment, according to TPG Capital’s founder Jim Coulter.

Speaking at the Super Return International conference in Berlin, private equity guru Jim Coulter said the increased sophistication of limited partners (investors) has led to the growth in product focussed on more specific sectors and areas and this evolution is set to continue.

Coulter cited statistics showing that in 1995, just 3% of the global private equity market was focussed on distressed, turnaround or special situations. This compared to 13.3% of the total global market by 2011.

He explained: “Private equity for buyouts will become an increasingly small part of the industry. There will be more focussed products as people begin to take more control over their choices.”

Coulter said the industry must now embrace the changing demand of investors and called on his private equity colleagues to respond albeit with reluctance, in some cases.

He said: “On the one hand, we are a young industry which has been pretty stable and the industry has continued to evolve at a meteoric pace.
“We had that moment in about mid-2008 and from that point, we went into retrenchment. It has turned out to be a lot worse that we thought it would be.”

TPG’s founder also took a moment to respond to the recent rhetoric that fund structures were no longer the future of the private equity market and that investors have been preferring to invest directly.

He said: “Some LPs say that they don’t want to do funds any more but I think that is wrong. There is going to continue to be a fund business but LPs will look for other ways to manage their portfolios and we are starting to see that now.

“LPs are being allowed more control as to how they get in and out of certain areas. We have an industry that has been built on funds but we are seeing an evolution.”

Part of the evolution of which he spoke included the charging structures of such products. He added that he believed the days of everyone paying the same price would also be coming to an end.

By Joe McGrath, in Berlin



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