Business as usual

There is widespread belief that LPs are only likely to back existing fund managers, and even then only after prolonged due diligence and at a lower level than previously. What are your views on this?

"Certainly LPs will look at their manager relationships and seek to use the current market opportunity to focus on those managers they have the greatest faith in. Similarly, until we see a return to a more favourable exit market, commitment sizes are likely to be reduced.

For first-time funds, the environment becomes even more challenging than normal. These reactions are not new and have been a feature of previous downturns. Having said that, quality teams, including new teams with demonstrable track records through cycles, will find funding.

However, we do expect an acceleration of succession events and the demise of a number of both new and long established names. So we believe it remains crucial to commit to emerging managers, even in this environment, to ensure the ability to replace the established managers that will not make it."

LPs have been changing their investment strategies in light of the economic slump. How has Capital Dynamics reacted to recent market changes?

"Capital Dynamics has not changed its strategy and does not expect to do so. We believe that private equity is a long term asset class that inevitably passes through cycles. Seeking to time a cycle is therefore inappropriate. Manager selection is the paramount consideration. In our experience, good managers perform irrespective of cycles. So, for example, we commit to distressed managers irrespective of the theoretical economic cycle.

Also, we certainly believe those sounding the death knell of large buyouts are misplaced. Large buyout managers have both money and multi-skilled teams and, therefore, are well placed to capitalise on the opportunities being thrown up over the next few years.

While debt is not presently available, it will gradually return to the market. In the interim, we are likely to return to the good old-fashioned private equity model we saw over 25 years ago with the acquirer providing most, if not all, of a capital structure.

Having said that, over the coming years we do expect to see rising allocations to Asia as these markets continue to develop into mature private equity markets as well as enjoying a return to strong economic growth. This does not discount our view that private equity will also continue to develop globally."

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