EUROPE - GPs must re-invent, LPs must invest

Kim
01 October 2009

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Europe's GPs must change their ways to emerge successful from the current market conditions, and need LPs to back them in order to do so. This was the theme this morning at the fourth annual Deutsche unquote" Private Equity Congress in Munich.

"We tell our portfolio companies to cut their staff, work longer hours and innovate endlessly. But we ourselves do very little to improve as an industry," stressed Ingo Krocke, partner at Auctus. "GPs now often say they don't have time to invest in new deals because they are too busy managing their current portfolio, but that is not good enough. It is a good time to be investing and so GPs must look to set up dedicated deal origination centres if that is what it takes to make this work."

This view was bolstered by Louis Elson, managing partner at Palamon Capital Partners: "The industry has had a nice run, but it must now focus on what it will extract from this market to survive going forward."

The re-invention theory was backed up by less than a quarter of the UK mid-market in a recent poll conducted by unquote for the British Private Equity Awards. In it, just 24% felt that the industry needed to change to survive.

LPs also came under the spotlight, since without their support GPs cannot do much in this market. "We used to believe that institutional investors should not time the market, that they should instead deploy capital regularly and allow their GPs to utilize investing expertise to do this," commented Hanspeter Bader, managing director at Unigestion, pointing out the vast sums of capital that poured into the market between 2006 and 2008 and comparing it with today's dearth. "This is not true. GP teams are paid to invest, and so investors need to help them with the timing," he continued, indicating that now is not the time to withhold money but to deploy it.

The congress is sponsored by PricewaterhouseCoopers, Greenpark Capital and SJ Berwin.