Mountain out of a Molehill

Mareen Goebel
22 March 2010

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The over-used phrase “cautiously optimistic” sums up expectations for 2010. While some firms celebrated successes in 2009, many more had their heads down with crisis management, refinancing their existing portfolio companies and constantly readjusting NAVs.

Owing to these difficulties, more than a quarter of UK-based GPs did not make any investments during 2009, even though the industry is sitting on unprecedented amounts of cash. Most investment professionals agree that 2009 was meant to be a great vintage. Four out of five respondents to a poll conducted by IE Consulting on behalf of Grant Thornton said they still needed to invest 25% or more of their latest fund. A total of 27% admitted they still needed to invest more than three quarters of their war chest.

While the lack of available debt has been an oft-heard lament over the last few months, this was only an issue for half the respondents. Other GPs saw unrealistic vendor expectations and the difficulty of sourcing quality deals as the main obstacles to closing good investments.

Looking at the larger picture, with one country after the other emerging from recession and entering a tenuous phase of stabilisation, new questions arise. Are we facing a W- or L-shaped curve (nobody talks about U-shapes any more)? Will US President Obama's reforms force banks to sell off billions in private equity assets? When will the recovery gain momentum and support itself? What about the AIFM directive?

Looking at the mainstream media, it would appear that the crisis is already over, and we're on a firm path to recovery. While it is difficult to stay downbeat for a long time, the improvement we are seeing comes from such historically low levels that, from that perspective, any recovery will be as welcome as it is overdue.