The Global Outlook for PE (from the U.S.)

There is no question that the U.S. private equity sector plays an outsized role in the U.S. economy, and even in a relatively quiet period is still robust compared to any other region of the world. While the global PE market seems to be slowly catching up, both as a pipeline for new deals and as a source for new investors, what do PE players themselves think about the future of PE globally? And how are they navigating today’s headwinds – namely the regulatory environment and interest rates – to find investment opportunities across continents?

That was the question news organization Axios explored during a recent event, Axios’ The Next Era: Private Equity’s Global Path NYC. Axios PE reporter Dan Primack interviewed several PE executives for their perspectives, including Weil, Gotshal & Manges LLP Co-Head, U.S. Private Equity Christopher Machera, and Partner, Private Equity Robert Rizzo; Hamilton Lane Co-CEO Erik Hirsch; and EQT Group’s Head of Private Equity North America and Global Co-Head of Healthcare Eric Liu.

Cross-Border PE

Machera and Rizzo noted that cross-border deals have been accelerating and that pent-up demand makes the market primed for an uptick. They said, “Asset management M&A is a huge trend. There’s been a huge shift of capital coming this way from the European sponsors – we’re seeing a lot of sponsors look to the U.S. when it comes to private equity and other acquirers.”

They argue that increased regulatory scrutiny – including some anti-dealmaking sentiment – should not scare dealmakers away. “We’re dealing with the same issues on both sides of the Atlantic. We’re dealing with hostility like we’ve never seen before when it comes to dealmaking. But the important thing to note is that …both in the U.S. and Europe … private equity is looking to enhance the competitive nature of markets, and everything that private equity is doing in acquiring businesses and seeding business is furthering that goal.”

They’re also optimistic about global deal activity now that the financing markets have normalized and refinancing options have improved. Rizzo said, “Even over the last few weeks, we’re getting more calls on new deals – not just minority deals and secondaries … but proper LBOs.” He said he’s seeing more auction processes leading to signed deals, as well as an uptick in carveouts and take-privates.

Size – and Location – Matters

Another trend noted at the event is the growing divide emerging between large, global PE firms and everyone else, both in terms of an advantage in winning deals and ease of fundraising.

Liu from EQT described how his firm’s strategy of operating smaller offices across Europe has helped strengthen its dealmaking capability. Compared to many PE firms whose only European presence are U.K. offices, EQT has offices in more than 25 countries across Europe, Asia and the Americas. He said this “local with locals” approach pays off when there is a deal in a particular country because “we know everyone there. So that’s what our investors invest in.”

Hirsch of Hamilton Lane maintains that going public in 2017 was key to building his firm’s brand globally, especially in Asia, and has made the firm much more competitive. While noting that he’s never seen a fundraising logjam as he sees today, Hirsch also foresees longer hold periods are here to stay regardless of the fundraising environment. “You have GPs in love with assets – if they have a great business that’s compounding in double digits, they’re reticent to sell it,” because he says, trying to find a new asset that they’ll be able to grow the same way is riskier.

Trends and Predictions

What might PE look like in the near future? The event participants offered a few predictions based on trends they’re seeing:

• Opening up PE to the mass affluent will become a game-changer, leveling the field by providing access to an asset class institutions have long enjoyed.
• Expect to see continued shifting of banking resources to private credit.
• PE firm/insurance company partnerships will continue, especially at the large end of the market.
• Tokenization of securities is coming, as retail investors, then institutions create demand.

Jennifer Hurson
Managing Director of Lambert by LLYC