June 7, 2013
Interviewed by: David Snow
Video Clip
Login to view full video

Why Distinctive PE Firms Will Flourish

The pressure is on for GPs to perform, so how does one stand out from the crowd? Michael Rogers, Global Deputy Sector Leader of private equity at EY, discusses key findings from his firm’s recent Global Private Equity Watch report and explains why having a distinct approach is more important than ever for PE firms.

The pressure is on for GPs to perform, so how does one stand out from the crowd? Michael Rogers, Global Deputy Sector Leader of private equity at EY, discusses key findings from his firm’s recent Global Private Equity Watch report and explains why having a distinct approach is more important than ever for PE firms.

Why Distinctive PE Firms Will Flourish
With Michael Rogers of EY

A key finding of EY’s Global Private Equity Watch 2013 report was that GPs need to stand out from the crowd. Why is this so important today?

I’d say it’s becoming more important because the LPs are putting more pressure on the GPs to perform. So I think what we’re seeing is that there’s a lot of different strategies out there and it’s going to be difficult to stand out in the crowd to attract capital in the future, that’s the biggest issue. And we may actually see some consolidation in funds and some folks deciding not to continue on in the business.

One way to stand out is to diversify the platform into other strategies, such as credit and hedge funds. What would be some benefits of this approach?

I think that there is a benefit to adding on additional skills or offerings on your platform for the GP. First of all, the opportunity to leverage your asset base, your infrastructure, some of the sector knowledge that you’ve developed. You can spread that back and forth between the different businesses. So there’s definitely strategy benefit and what I call an administrative benefit to being part of a broader platform. And you’re seeing that in some of the bigger funds on a global basis.

But the other added benefit I think that’s key is the benefit to the LPs. And the LPs get a chance to consolidate their relationships which you can think about that as a big offering, a big opportunity for them because historically they have had to search out some of these alternative asset managers to find somebody to do their hedge fund work, to find somebody to do their distressed work, somebody to do their private equity work. If they can go to one fund then they can have the opportunity to leverage that relationship. And in actuality in some cases reduce their costs because they might be able to have some fee breaks in terms of bringing more capital to bear in one location as opposed to having spread across many different private equity funds or funds in general asset manager classes.

Many GPs are narrowing their investment focus to very defined sub-sectors of the economy. What are the benefits of this approach to standing out?

These trends are everywhere and I think that we’re going to see more and more of that. And one of the reasons is that people are either doing sector diversification, or concentration based on the fact that they really feel like it’s important in a couple different ways. One is in industries of high demand, for example energy, oil and gas. Something that needs explanation needs focus and attention. And the other aspect of it might be in industries that are changing dramatically, such as financial services, which is just very, very difficult to get your head around.

And I’d say the reason funds are focusing on that sector has to do with the initial period when funds were doing the buy in phase and there was often the use of things like commercial advisory services to understand those businesses. But now the firms are much more focused on this space in the middle, the value creation phase as well as the exit. So it’s imperative that these funds have sector skills that bring them all the way through the continuum.

And I can tell you that at our firm we’re very busy helping people in the front end analyze situations, very busy in the middle working on the value creation section, and then also with the exit platform and how they get their business to be monetized. And so we see sector as something that’s a trend that’s evolving, emerging, it’s only going to get stronger and I think you’ll see a lot more focus.

Register now to watch this video and access all content.

It's FREE!

  • CHOOSE YOUR NEWSLETTERS:
  • I agree to the Privcap terms of use and privacy policy
  • Already a subscriber? Sign In

  • This field is for validation purposes and should be left unchanged.