EUROPE - Bear Stearns Private Equity seizes the moment

Nathan
30 August 2007

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In an interview with unquote", Bear Stearns Private Equity director Greg Getschow explains that market upheaval can be good for business and how GPs will have to rediscover the essence of private equity. The last few weeks have been a challenging time for those associated with the Bear Stearns brand name. The collapse of two Bear Stearns hedge funds heavily exposed to sub-prime mortgage debt caused the share price to plummet, earnings forecasts were slashed and credit worthiness downgraded. From much of the reporting, one would have been forgiven for believing the end was nigh for one of the worldтs giants of investment banking. However, away from this turmoil, its LSE listed fund-of-funds arm sensed an opportunity. As investor confidence wavered and its stock price fell, executives at Bear Stearns Private Equity Limited (BSPEL) exercised an option to buy-back shares. тWe looked at the market, looked at our business and saw an under-valued stock,т says Greg Getschow, senior managing director at BSPEL.

Launched in June 2005, BSPEL has built a portfolio of 67 funds and 6 direct investments, with a particular focus on special situation funds. Recent credit market corrections have BSPEL buoyed. ‘Mezzanine funds or those with a distressed element are now a great proposition. Mezzanine in particular will play a larger role as senior debt gets re-priced,’ believes Getschow.

Another core part of the business is acquiring secondary fund positions. Unable to compete on price against many of its more established counterparts, BSPEL has had to innovate. ‘We aren’t prepared to battle for secondaries against other players and pay an inflated price. We are deep-value investors. Scouring the European mid-market for LPs considering a divestment and negotiating a great price is tiring but gets results,’ Getschow affirms. As investors re-consider portfolio allocations, getting more down-time is unlikely.

Although presented with an opportunity as a result of market corrections, Getschow takes a less than favourable view of the leveraging practices of GPs in recent years. ‘There was a dislocation at the higher end, fuelled by the price of senior debt. Equity sponsors will no longer be able to rely on financial engineering to generate value. They will have to spend less and focus on building companies. This is what private equity should be about.’

By Nathan Williams