Investors safe to enter private equity

Despite the recent drift in private equity performance, the market is at an ideal stage for new investors, according to an executive from one of the world’s biggest private equity investors.

Calpers investment committee chairman Michael Flaherman talked up the opportunities for new investors in private equity at Resnik Conference’s recent Alternative Investment investors summit.

"There is blood in the streets, people are running scared in the venture capital world, and the prices are lower," Flaherman says.

Flaherman, speaking via satellite from the San Fransisco office of the Californian pension fund giant, says current investors are feeling a painful pinch, but that meant company start up prices and evaluations are cheaper.

"I'm not saying that it is not heavy times ahead for those currently in private equity. Anyone in private equity has not seen the worst," Flaherman says.

"I am focusing more on the fact that capital is scarce. The current number of firms seeking capital is very high. Anyone who can get into the private equity market will be well served at this point going forward."

Flaherman says the drop in private equity performance is due to the markets continuous adoption of the herd mentality.

He says investors have been buying with a herd mentality for years now, resulting in aggressive growth funds getting most of the new money.

"It has been troubling to see the herd come thundering through, as there is very little that anyone can do," Flaherman says.

Despite private equity performance of more than 20 per cent per annum since forming its private equity division in 1989, Calpers is experiencing difficult times alongside the rest of the industry.

In a move to increase performance and gain ground in the market, Calpers has an interest in the biotech sector and private equity in underdeveloped income areas. Flaherman says at present the group is interested in nine US private equity groups as fertile ground.