Private Equity After the Credit Bubble | PE Findings 20

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25 July 2024 Publication
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Private Equity Findings, Issue 20

Topics
Foreword By the numbers
Retrospective: A bigger picture
Overview Understanding LPs performance The role of academic research in PE The most influential pieces of academic research The affect of the 2006-07 credit bubble Resilience of the PE industry The the growth of private debt funds Areas of current research Areas of research opportunities?
What’s at stake?
Roundtable: Will AI transform private equity?
Overview PE embracing AI technologies AI origination for VC investments The limitations of AI & lack of data AI in decision making Using AI to predict future outcomes Do LPs really need AI to process qualitative information? AI techniques to predict company director performance Do large networks and directorships mean poor performance? What aspects of PE are ripe for AI disruption? AI for PE: hype vs. reality
Time for a new model?
Overview Time for a new model: The research viewpoint Time for a new model: The investor viewpoint
The side letter arms race
The affect of the 2006-07 credit bubble
Foreword By the numbers
Retrospective: A bigger picture
Understanding LPs performance The role of academic research in PE The most influential pieces of academic research The affect of the 2006-07 credit bubble Resilience of the PE industry The the growth of private debt funds Areas of current research Areas of research opportunities?
What’s at stake?
Roundtable: Will AI transform private equity?
PE embracing AI technologies AI origination for VC investments The limitations of AI & lack of data AI in decision making Using AI to predict future outcomes Do LPs really need AI to process qualitative information? AI techniques to predict company director performance Do large networks and directorships mean poor performance? What aspects of PE are ripe for AI disruption? AI for PE: hype vs. reality
Time for a new model?
Time for a new model: The research viewpoint Time for a new model: The investor viewpoint
The side letter arms race
Retrospective: A bigger picture
In our first issue, we opened with an interview with you, Steven, about how the credit bubble of 2006 and 2007 would affect returns and the industry. You talked about how returns from these vintages would be negative, LP commitments would reduce and the industry would contract. What’s your perspective on this today?

“The 2006 to 2008 vintages turned out better than I thought – they were equal to those of the S&P 500, although they were still the worst years for PE. Back in 2007 and 2008, we saw a boom in deals, the stock market was robust and interest rates were low. It looked a lot like what we saw in 2020 and 2021, when there was an explosion of activity. Just like in 2009 and 2010, we are now seeing some indigestion and, just as in 2009 to 2011, fundraising totals are low.”

 

“It’s worth saying that the world didn’t end then for PE, as some were predicting after the GFC. It’s unlikely that the 2020 and 2021 vintages will be great. It will be interesting to see if they beat the S&P 500 because it’s a challenging benchmark for PE. The Russell is probably a closer match – and it’s easier to beat because it has performed poorly.

“Right now, sellers are looking for values they could have achieved in 2021, while buyers are looking for lower values more consistent with today’s environment. At some point, we will start to see buyers and sellers come closer, just as we did in 2011 to 2012. If interest rates go down, buyers will be willing to pay more, closer to what sellers expect now. If interest rates stay high, sellers will capitulate and sell at the prices buyers are now willing to pay. Buyers and sellers returning to the deal market happened after the dotcom bust and after the GFC. I see no reason to believe it will be any different this time around.

“PE won’t die, but will it grow? It definitely needs to deliver returns at least as good as those of public markets. Those who can do this will raise capital from LPs; those who can’t won’t.”
Steven Kaplan

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