30 March 2010
A renewal of private equity
Recurrent rumours about mergers and acquisitions in the
global private equity industry have culminated with Rus-
sell Investments selling fund of funds Pantheon Ventures to
the Affiliated Managers Group. Last year Capital Dynamics
scooped up Silicon Valley fund of funds manager HRJ Cap-
ital, while more recently Natixis announced talks to sell part
of its private equity activity to AXA Private Equity.
Industry figures said these could be the first of many in
the coming months as a battered industry restructures.
Capital Dynamics managing director John Gripton put it
this way: "We've been through a rapid growth in terms of
funds under management within the private equity industry.
Since 2000 we have seen several new entrants in the industry
as well as several pension funds, sovereign wealth funds and
new sources of capital committing to private equity.
"What we are seeing right now is a natural correction,
which will lead to consolidation. We will see a number of
fund managers simply not raising another fund, because
performance does not justify it."
The move towards consolidation will likely be seen more
with fund of funds rather than general partners (GP) the
managers directly managing a portfolio of private compa-
nies. As for the latter, observers suggest it would make more
sense to sell their portfolios to other GPs in what are referred
to as secondary sales.
"Where private equity firms are really in trouble, it's actu-
ally much cheaper and easier for the competition to buy the
portfolio rather than the portfolio plus the team that goes
with it. The team probably holds low value to an acquirer
unless it has done stellar work in which case, it is unlikely
to be struggling as much as other firms," commented IE Con-
sulting principal Matthew Craig-Greene.
Limited partners (LPs) as investors in private equity
such as pension funds are known agree and point out how
this process is part of a painful