September 28, 2015
Interviewed by: Tom Franco
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How LPs View the Current PE Climate

What does the current cycle in private equity look like through the lens of a leading limited partner? Four LPs give their thoughts on today’s investment climate.

What does the current cycle in private equity look like through the lens of a leading limited partner? Four LPs give their thoughts on today’s investment climate.

How LPs View the Current PE Climate
Through the Lens of the LP

What is the current cycle like for LPs?

Susanne Forsingdal, Managing Director, Head of Americas—Allianz

Forsingdal: This environment has been good in the way that we’ve seen more distributions than ever; we’re seeing a lot of capital coming back. This also leads to some pressure not only for us but for other LP’s to put out more capital, so there is plenty of capital available for private equity funds today. Of course, the risk that comes with that is fund managers really building up in size and building up to a level where it is making the move into areas where they haven’t been invested before.

Perhaps it’s a different competitive landscape, a biggersized investment—maybe they want to expand going into other geographies or they want to go into different sectors because they now have the availability of a lot more capital or bigger-sized funds and they will use that to spread out a bit, so that creates another risk.

Dan Feder, Managing Director, Private Markets—Washington University Investment Management Company

Feder: There is a view that we’re at a point where prices are up and there is a lot of enthusiasm; therefore, why would you invest in funds today? It seems to be odd in the sense that the funds have investment periods that go out three, four or five years, so I might be more nervous about the funds raised last year and the year before because they are the ones that have invested into this, and we don’t really know from here, so the nervousness about what the conditions are today—meaning this very day—maybe ought not to figure as prominently as they do.

Jonathan Roth, Managing Director, President—Abbott Capital Management

Roth: It’s been interesting to see how a lot of firms have done extremely well in a low interest-rate environment, being able to tap robust credit markets and able to sell on a fairly regular basis, be it to the public shareholders or to other strategic buyers with an enormous amount of cash, or even financial buyers who have an attractive pool of capital to tap with an attractive set of credit markets.

How do we look at performance in that light, when you clearly had another period of time when performance was much more challenged? For us, we use the expression of “raising the bar” to understand who added value, how that value was added, and how those returns were generated, versus just the number in and of itself. That’s where the fun part of the business is—peeling back the onion and understanding margin expansion, EBITDA growth, obviously debt pay-down, strategic repositioning of businesses. That’s a more repeatable formula, in our opinion, as opposed to relying on muted or declining interest rates and refinancing.

Sheryl Schwartz, Managing Director, Investments— Caspian Private Equity

Schwartz: I think we’re a few years away from a downturn, but the commitments we’re making now to funds that are going to invest over the next five years are going to have a downturn in their investment horizon. And we’re committing to funds assuming that and evaluating managers based on that.

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