PE issues today and their implications
January 21, 2011 Leave a comment
Some of the issues the PE world is facing these days and their implications I feel are:
Funds are sitting on a dry powder of around USD 500 bn which is awaiting investments. The investment period deadline of many funds is around 2011-12, so they are left with very less time to invest the uncalled commitments. This is resulting in many funds investing at very high valuations in places like Asia and overheating the already heated market.
Not many IPOs of PE backed companies are happening as a result of this most of the exits are happening through secondary sales. Is this leading to somewhat round robin, where only secondary exits are happening? In that case wouldn’t it be better to have more secondary funds?
In case of buyouts much of the debts used during the 2007 buying spree would be due in 2012-13 and the economic situation of all the funds is not so well that they would be able to payback all the debts. Would this lead to a new market of debt refinancing? If some big repayments do not work out would it lead to new economic problems?
Globally government regulations for alternative asset class especially PE/VC is tightening.PE/VC would no more be as profitable as it used to be. It would no more be a totally unregulated asset class.
Big PE firms have started looking at small deals also.With the big firms trying to take away the pie of small firms who used to specialize in small and medium enterprises, there would be huge competition among the funds. This may inculcate a very favorable environment for entrepreneurs.