Trust is at the heart of the matter

What opportunities do you see in the short or mid-term for private equity?

With the return of debt, the industry will be able to acquire businesses at good prices. Private equity has considerable opportunities to benefit from the burst bubble. We assume at the moment that we will reach the bottom in 6-12 months. Buying now, or soon, then keeping the company for two to three years could be optimum exit timing. The industry is positioned well as it is capable of a wait-and-see-strategy.

What kind of challenges does the industry face on the whole, beyond hampered deal-doing?

In a way, private equity has become the victim of its own success. Private equity has seen its own bubble, during the height of which many people started their own shops that are not equipped to create real value and lack the qualification to do more than financial engineering or multiple-riding. Many of those burnt investor money in illegitimate transactions, others used too high leverage and aimed for a quick flip. During the excess, there was the overall impression that a company that had gone through three private equity owners was sucked completely dry. These should vanish, which will do the overall industry a lot of good as it can resume repairing the trust that has suffered during the boom times.

How should private equity address the crisis of trust?

Broadly, the market is calming down and consolidating. In this situation, a very important factor for the survivors is to create (or re-create) trust. Private equity is now widely seen as an asset class like any other and it is here to stay. But the issue of trust really touches all levels of private equity. LPs fears need to be addressed about their returns and the validity of the business model.

GPs themselves need to trust that there will be profits in the mid- to long-term, as many experienced managers see that their current funds are unlikely to generate good returns and many don't expect to see carry payments in the next nine years, potentially leading to a painful brain drain from the industry. Banks, too, need to be able to trust that private equity is reliable and legitimate and can generate value without irrational debt-to-equity ratios. The managers and employees of target companies have come to learn to fear and mistrust private equity due to the arrogance and aggressiveness of some private equity professionals.

Instead, private equity should strive to act responsibly to society and respectfully to all stakeholders. Private equity needs to communicate that it can be a benevolent stakeholder to counter the image problem caused by some gamblers and robber barons. This will require impeccable professionalism.

What role do you see regulation play in this?

While private equity has often resisted the notion of more regulation, I believe that regulation - if it is tailored to private equity - can professionalise the industry and establish higher quality standards, and that could be achieved with more transparency. The UK is certainly leading the way in terms of transparency, beginning with the Walker report, but UK private equity overall is certainly a good example for professionalism.

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• LPs
• DACH