Private Equity industry has faced, and overcome, multiple obstacles in the past but Brexit poses a completely new set of challenges as the outcome is largely in the hands of politicians. It is trite that the regulatory landscape for PE has become more hostile of late and legislation such as the Alternative Investment Directive has arguably done enormous damage to very little good effect.
Whether financial services in the UK can reap the best of both worlds, access to the EU, though with lower regulatory burdens, remains to be seen. In any event, tax authorities around the globe are making concerted efforts to target both thin cap rules and carried interest, which will affect the UK whatever the negotiations with the EU.
On the investment front, value creation remains testing with entry multiples near record peaks driven by a combination of benign macroeconomic factors, particularly low inflation and feeble growth, together with industry factors in the shape of a wide availability of both equity and debt.
On the equity front, Private Equity remains highly competitive. Funds have record amounts of dry powder at their disposal whilst well-capitalised corporates buyers prowl in the wings. Co-investing remains a feature of the market being both a boon and a bane, but the last year has seen LPs ramping up their own direct investment arms whilst Special Accounts are fast gaining traction.
Though debt markets continue to provide copious amounts of capital from traditional sources, this has been matched by alternative lenders who can deploy significant tranches of debt, in some cases over €500 million per deal, and on increasingly borrower-friendly terms. Whilst this does not augur well when the economic cycle turns, it will provide opportunities for the turnaround segment of the market.
Against this backdrop, deal origination and value creation remain key concerns. The answer to the former is to develop a direct origination strategy although this takes time and money. As to the latter, some industry experts note that a narrow focus on IRR, at the expense of other metrics of value creation, can encourage shorter holding periods, thus boosting reinvestment risk in a testing market.
This conference draws together the leading experts who will provide commentary and an insight into the key issues and trends affecting the Private Equity industry and will give the attendees the opportunity to ask questions to the expert presenters.
I look forward to welcoming you on the day of the conference.
Senior Consultant, Grant Thornton