Set for the long haul

Despite the force at which the downturn has hit the private equity industry, major players seemed to hold a glimmer of hope for the coming months, at Legal Week's private equity forum last month.

Leading figures from the worlds of private equity and law gathered to discuss themes including fundraising in a new post-economic crisis market, best practice after market turmoil and responsible investing.

Taking place on the day of the budget announcement, the mood at the forum was decidedly subdued, with many predicting that meaningful economic recovery would not arrive any time soon. Concerns were also expressed about the stricter regulatory environment that lies ahead for private equity houses - in particular the forthcoming European Commission (EC) directive on financial services, which is currently being drafted - and negative perceptions of the industry in the media and among the public.

There were, however, some glimmers of optimism, with several attendees suggesting that the next few months could see investors returning to the market, albeit with considerable caution.

Legal Week spoke with key guests to find out their thoughts on what the future holds for private equity.

Peter Cornell - managing director, stakeholder relationships, Terra Firma

"I believe the first point of any recovery will come, at the earliest, in late 2011. And I don't see any meaningful recovery setting in until 2013. By that stage there will have been, in all likelihood, a significant drop in the standard of living in the developed world - probably in an environment of significant inflation. Having said that, the next six to 18 months could hold some of the best opportunities we've seen for a generation."

Kevin Dunn, general counsel and company secretary, 3i

"The wave of regulation we are seeing at the moment is, of course, partly related to the economic crisis. But it is also partly to do with the maturing of what is still a pretty young industry and its increasing importance and acceptance as an investment asset class. The challenge for us as private equity lawyers is to get to grips with the regulation and help our businesses manage any resulting changes. Given that the proposed regulation at a European Union level is likely to apply across many borders and multiple asset classes, as Barry Lawson, managing partner of the Private Equity Consultancy, said, it may be a bit like 'squeezing a middle-aged man into a wetsuit'."

Claire Wilkinson, general counsel, Omega Fund Management

"In a sense, the Darwinian rules are going to apply: by that I mean that it is not the biggest, richest or most intelligent which will make it, but those most adaptable to change that will survive. The upcoming EC directive on financial services - which I fear is going to see private equity funds and hedge funds lumped together - will clearly play a part in how we have to adapt. But regardless of the content of future regulation, I think it is going to be crucial in our adaptation to changing market conditions that, as well as overhauling underlying processes and business strategies, we look at the image of the industry. Right now there is a misconception that 'private' means 'secret'. We need to show that it doesn't."

Seda Yalcinkaya, head of legal, Citi Venture Capital International

"In addition to the impact of the global economic slowdown, in the last three quarters, certain emerging markets have experienced significant devaluation of their currencies. These macro-economic factors and the correction in capital markets have resulted in a significant slowdown in private equity investments for emerging markets while investors wait for the valuations to settle down. The big question we're all asking ourselves is: 'Is this the bottom of the market?' Nobody is sure of the answer to that, but deal flow seems to be picking up compared with the last two or three quarters, with more opportunities becoming available to private equity investors in the absence of available financing through capital markets. However, funds that are considering investments in emerging markets are proceeding with added caution."

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