Private equity houses focusing on portfolio management

05 November 2003

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Research carried out by Ernst & Young has concluded that private equity houses have become increasingly focused on managing their portfolios to counteract falling returns and the effect of lengthening investment cycles. According to the statistics, E1.4bn of private equity investment was written off in Europe in 2002. 'The main reason for this distressing fact is that exit opportunities have rapidly dried up since the tech and market crash, lumbering PE houses with lead weights that are practically impossible to jettison,' said Garry Wilson, private equity restructuring partner at Ernst & Young. 'The old model of 'invest-hold-sell' has been replaced with the more demanding 'invest-act-sell' approach. The houses need to look at restructuring options like taking out cost, de-gearing, closing locations and integrating parts of the business. It is also just as important to accelerate growth and profit improvement options like opening new markets, product rationalisation and synergy capture.' But Wilson warned: 'the move towards public disclosure in private equity is putting PE houses under additional pressure. As the ability to raise funds remains constrained, the house with strong performance will find it easier to raise funds and progress faster, but poor performers will be exposed. It is imperative then that all houses make a priority of maximising the value locked into individual portfolio companies now.' The release from Ernst & Young is in conjunction with the launch of the company's new portfolio management service aimed at assisting private equity houses.