Private equity managers need to come to terms with the ‘new normal’ higher interest rate, uncertain environment and find ways to stay ahead of the curve if they are to continue to fundraise successfully and ensure private equity continues to play a positive role in global market systems.
That was the view of Tim Hames, former Director General of the British Private Equity and Venture Capital Association (BVCA), ex-Assistant Editor of The Times and currently a consultant to 17Capital, who spoke at the first JTC Private Equity Seminar series events of the year recently in Jersey and Guernsey.
The events focused on the outlook for the private equity industry this year and how managers and investors are adapting to volatile, inflationary, recession-threatened global markets.
“The industry has got too used to a low interest environment, but investor dynamics are changing,” said Tim, pointing to the fact that the sector is complex, fast moving and requires an ability to adapt quickly. “Investors are re-evaluating and finding opportunities in different areas – tech is the obvious area where opportunities are being sought and there’s a big focus on B2B – although at some point, there has to be a consumer, so there are opportunities there too.”
The impact of inflation on asset values was a big topic of debate at the events, with Tim pointing to the UK offering good values at the moment.
“Investors need to be conscious of the fact that there are different types of inflation in different markets,” warned Tim. “It’s not a straightforward picture – the UK is very different to the EU and the US for instance. There’s a need to be agile and tuned in acutely to good quality data so that you are well positioned to see what’s coming around the corner and act quickly and decisively before anyone else does.”
Focusing on the pressures currently on managers, Tim highlighted some of the challenges presented by current market conditions:
“Fundraising is a challenge, and chasing smaller investors may seem a hassle for managers – but actually, it’s no bad thing for a manager to have a diverse investor base in the current environment. Big investors can provide homogenous risk profiles and outlooks, but smaller investors offer diversity and help spread risk.
“Meanwhile, on the ESG front, managers are needing to move away from a checklist approach to differentiate themselves in a highly complex, and evolving, space. Again, it’s all about anticipating future demands.”
With the private equity and venture capital landscape set to continue to evolve as investors and managers look to balance their strategies, Tim emphasised the importance of the asset class as a core driver of growth:
“There’s undoubtedly a really positive place for private equity in the current environment,” he said. “If we look at the evolution of the industry, we’ve moved from private equity some years ago being an ‘upstart’ industry to where we are today, playing a key role in public markets. It’s no longer an industry focused on problems; it’s about being proactive in creating solutions, and we shouldn’t lose sight of that. It’s a powerful proposition in the new landscape we find ourselves in.”
Reflecting on the events, Alan Baird, Head of Fund Services – Jersey, reiterated the need to stay ahead of the game:
“The landscape has changed, but the returns for investors are there. For investors and managers, it’s critical to have the right support in place so that they can move quickly where they see opportunities – and that means, from the perspective of a service provider like JTC, that anticipating future trends and being able to see beyond what managers are thinking is more important than ever.”
Tim Hames was in the Channel Islands as a guest of JTC to provide insight into the private equity and venture capital industry. To find out more about JTC’s services, please contact Alan Baird or Marie Fitzpatrick.
