Private equity to be hit by global crisis

The global financial crisis is likely to impact private equity in three waves: through a contraction in corporate earnings because of a reduction in gross domestic product (GDP) growth rates, by forcing companies to refinance to stay profitable, and causing a correction in earnings before interest, tax, depreciations, and amortisations.

This assessment of private equity was presented by private equity fund Adveq in its annual press conference in Frankfurt.

The general outlook for private equity over the next few years would be an orientation back to private equity segments such as proprietary deal sourcing, real operational and strategic value adding, and strong exit orientation, according to Adveq.

The large buyout segments will likely be refined before any kind of comeback can be expected. This may result in a “right sizing” of the segment or a refocus towards more value orientated or distressed investments.

Bruno Raschle, the chief executive of Adveq, said: “The world is currently experiencing financial markets turbulence that is unprecedented, at least for the past several decades, and this has a number of implications for the private equity market, both for existing and new commitments to the asset class.

“However, while it is clear there will be reduction in the return expectations for past vintage years in certain segments, we believe sharp reductions in valuations will in fact create attractive opportunities for both current and future private equity fund commitments in most private equity segments.”