For years, almost ever­y­thing went right for the billionaire bosses of the buyout indus­try. Now, with inte­rest rates rising for the first time in 20 years and their busi­ness model facing its biggest test since the crash of 2008, private equity firms are looking to new inves­tors for what they hope will be the next revo­lu­tion: an unpre­ce­den­ted influx of money from retail investors.

That’s why indus­try insi­ders are confi­dent, even after the condi­ti­ons that sparked a decade-long boom in the private sector have turned into the oppo­site. “A great time is dawning for private equity as markets stabi­lize again,” Verdun Perry, Global Head of Blackstone Stra­te­gic Part­ners said confi­dently at a confe­rence in Cannes in Septem­ber. The influx of retail money is only a matter of when, not if, he said.

Buyout firms have reali­zed nume­rous deals at often breath­ta­king valua­tions in recent years, taking on more and more debt in the process. Now they are holding compa­nies whose borro­wing costs are rising while their profits are falling. The pros­pect of these compa­nies getting into trou­ble puts a smile on the faces of others — the inves­tors who specia­lize in bad loans.

Some have grave concerns about the confluence of falling profits, lower cash flow and rising borro­wing costs. They see little path to a soft landing for the indus­try. They believe that the market has passed its zenith and are parti­cu­larly concer­ned about indus­try prac­ti­ces. More than a few criti­cize the industry’s use of “conti­nua­tion funds,” a fast-growing model in which a private equity group sells a port­fo­lio company to itself by moving it between two of its own funds. Critics describe this measure as a trick used to mani­pu­late the yield figu­res, so to speak.

Need for a strong gover­nance framework
“Now the indus­try is also targe­ting people further down the ladder. We’re talking about a real demo­cra­tiza­tion,” says Virgine Morgon, CEO of buyout group Eura­zeo. The indus­try would also take money from people who want to invest USD 5,000 or USD 10,000. In Septem­ber 2022, Ariane de Roth­schild, chair­man of the Swiss Edmond de Roth­schild Group, warned of “the need for a strong gover­nance frame­work to avoid misun­derstan­dings and poten­tial repu­ta­tio­nal damage” when invol­ving ordi­nary investors.

Some warn that the indus­try is in a state of limbo, as private valua­tions of compa­nies owned by corpo­ra­ti­ons and non-publicly listed private equity firms them­sel­ves have not fallen as well as the public markets. It’s kind of inte­res­t­ing because the private markets still seem to be main­tai­ning their valua­tions. But even­tually they will converge. Whether that goes up or down, only time will tell. — Shares of Blackstone, KKR, Apollo Global Manage­ment, Carlyle Group, EQT and Bridge­point have all fallen more than the S&P 500 this year.

This has by no means spoi­led the mood of all deal-makers. A top execu­tive of a Euro­pean buyout group said he was confi­dent that “the golden age of private equity is just begin­ning.” One of the main reasons for this opti­mism is the incre­asing inflow of funds from private indi­vi­du­als; it contrasts with the main inves­tors such as pension funds, foun­da­ti­ons and sove­reign wealth funds that have driven the industry’s growth so far. Indus­try leaders refer to this as the “demo­cra­tiza­tion” of private equity. A 2021 report by Morgan Stan­ley and Oliver Wyman said that indi­vi­du­als who can invest between USD 1 million and USD 50 million will invest an addi­tio­nal esti­ma­ted USD 1.5 billion in private markets by 2025.

In the maga­zine section of our anni­ver­sary issue, you can once again look forward to 10 promi­nent authors as well as exci­ting and new topics from private equity and corporate
Finance industry.

Buil­ding Better Busi­nesses — How mana­ging ESG factors crea­tes better compa­nies in the long run, explai­ned by Andi Klein (Triton Part­ners). — Our long-stan­ding authors Chris­toph Ludwig and Thomas Unger (BLL Braun Leber­fin­ger Ludwig Unger) shed light on the status quo of current tax deve­lo­p­ments for private equity and venture capi­tal funds and to what extent the “break out of the time warp” has succee­ded this year: Tax inno­va­tions and (non)
Deve­lo­p­ments in private equity and venture capi­tal funds.

Dr. Andreas Jobst and his co-authors Dr. Markus Zimmer and Pablo Espi­nosa Uriel (all Alli­anz SE) provide compre­hen­sive answers to the oppor­tu­ni­ties that arise for private inves­tors when inves­t­ing in climate-friendly infra­struc­tures. — Simon Frank (Pictet Asset Manage­ment) elabo­ra­tes on the chal­lenges of trans­forming our food systems and how inves­t­ing to feed the world in a healthy and sustainable way can succeed. — The young World Fund shows great ambi­ti­ons, which exclu­si­vely wants to make impact invest­ments. One of the foun­ding part­ners, Dani­jel Visevic descri­bes how the trans­for­ma­tion to a rene­wa­ble economy offers great return oppor­tu­ni­ties for investors.

Carl­Jan von der Goltz (Maturus Finance) explains how alter­na­tive finan­cing helps compa­nies navi­gate through the crisis and what tangi­ble solu­ti­ons it offers in uncer­tain times. — The way arti­fi­cial intel­li­gence and Big Data are chan­ging market rese­arch and why good data means good busi­ness, but bad data as a foun­da­tion can be really expen­sive, Robin Tech (delphai) reveals.

Dr. Chris­toph Phil­ipp and Hannah Rogger­maier (POELLATH) explain the stumb­ling blocks for private equity mana­gers in terms of property law. — And why a super­vi­sory board as a repre­sen­ta­tive of inves­tor inte­rests in the start-up sector can quickly run into conflicts of inte­rest and how these can be avoided is explai­ned by Dr. Chris­tof Schnei­der and Anselm Graf (both ARQIS).

If you’re looking to refresh your tradi­tio­nal port­fo­lio with a crypto addi­tion, you can take a cue from the latest from Prof. Dr. Phil­ipp Sand­ner (Frank­furt School of Finance & Manage­ment and foun­der of the Frank­furt School Block­chain Center) and his co-authors Felix Fernan­dez and Maxi­mi­lian Bruckner.

FYB 2023, in its 20th edition, is proving very popu­lar with 15 percent more company profiles than the year before. You will also find entries of foreign PE compa­nies that want to be present in the FYB Finan­cial Year­Book and on the German market. FYB 2023 offers over 270 stan­dard entries: 120 private equity firms, 31 law firms, 43 corpo­rate finance specia­lists, 29 corpo­rate and HR consul­tants, 30 networks, etc. Thus, FYB 2023 remains the leading refe­rence work for alter­na­tive finance in Germany. Also it offers you regu­larly inte­res­t­ing news on www.fyb.de.

Since­rely, Yours
Tatjana Anderer