2009 was supposed to be the downturn that cleared out the private equity sector. It didn’t happen, but Potentum Partners’ Steve Byrom says the sector’s “slow motion train wreck” might be on its way.
with two colleagues, invests in global private equity firms and alongside them on specific deals on behalf of family offices and institutional clients.Potentum is about to finalise a $US40 million fund raising for its Global Leaders fund, and plans to close another $US40 million for its co-investment fund by the year’s end.
“The sector got bailed out massively in 2009 by quantitative easing. Given we’ve got inflation, that’s highly unlikely this time around ... and it will be harder for people to raise funds if they aren’t in the very right-hand tail of the industry,” he said.“It will be a slow motion, long-term train wreck because funds can live off the management fee for existing funds for 10 years. We might see funds fail to raise, there have been funds that have raised and deployed that probably shouldn’t have.
“The value gap really relates to existing investments and the continuation of funding into existing companies ... we’ll see all sorts of very funky structures that push that problem under the carpet until a future date, where it’s an easier one to solve,” he said, but declined to name any examples.On the other side, flipping or selling down part of a business to crystallise a valuation and deliver carry to the fund managers would be harder to do in this market, he said.
“The fact is multiples have moved a long way in a very short period of time, and that should be reflected in valuations in some form,” he said.
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