Interview: BVCA's Mark Florman

The beginning of 2011 has seen many firms gearing up their fundraising efforts. Some observers feel that the market is over-crowded and that this will create difficulties for some funds. Do you concur? How can GPs stand out from the crowd?

It's always difficult if everybody comes to the market at the same time - but I don't think this is happening at the moment. I think we're seeing the return to a relatively normal pace of fundraising.

Managers should focus on highlighting very clearly what their investment strategy and differentiating factors are to drive value creation. Managers have always been very good at doing so in practice, but maybe they haven't focused enough attention on explaining to their LPs precisely how they drive change and generate returns.

As part of the broader economy, private equity needs to be better at demonstrating how it creates value. It does so through active ownership, where the private equity manager works alongside the portfolio company management team to enhance the running of the business. This active ownership model is one of private equity's key characteristics - it's an approach which will typically include improving governance, driving operational change and, increasingly, building in sustainability policies.

It would be a good idea if GPs would go into greater detail, especially to LPs from the other side of the world, on how value is created in Europe. The Continent still offers many opportunities for value creators.

The need for pedagogy and the promotion of private equity to a wider audience is a key part of the BVCA's plan - do you think the industry has been too secretive in the past?

Private equity is a young industry that has grown over the past 30 years and didn't appreciate there was a need for openness, beyond the transparency it has always had with its investors. Now that the industry has proven itself to deliver high returns, build more sustainable businesses, and generally offer the best governance model available, the public at large wants to know more about it.

GPs have always been very open to their investors, but the general public are also investors in an indirect way: it is our pensions that are eventually invested in private equity and create returns.

What are your views on the growing regulatory framework being put in place in Europe, and the effect this could have on private equity as a whole?

Regulation is fine, but over-regulation kills because it becomes too difficult to start new funds. What Europe needs at the moment are new funds, as we've now moved to the era of specialist strategies, in certain industries and in certain geographies. We need to promote the proliferation of those new, smaller funds - instead we're making it as expensive and complicated as possible.

We should be careful not to regulate the industry in such a way that only the larger funds can afford to manage the complications and added expenses, while smaller players are put out of business. The latter won't be able to pass on those costs to the LPs through management fees, since they're not likely to accept it. Those smaller firms will therefore hire less people, their fundraising efforts will be impacted and ultimately European businesses will receive less capital.

Read the full interview with Mark Florman in the upcoming May issue of Private Equity Europe.

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Send to  

• Topics
• Industry
• BVCA