Tenth Annual Private Equity Conference

The Federal Reserve Bank of Chicago hosted its Tenth Annual Private Equity Conference. The theme of the conference was The New World Order of Private Equity.

Global private equity (PE) assets under management now stand at over $2 trillion, with committed but undeployed capital exceeding $1 trillion. However, standard industry activity indicators, such as fundraising, deal flow and liquidity events through public markets or merger and acquisition (M&A) activity, have remained restrained. The economic downturn has impaired the availability of credit and the financial condition of industry participants. Reduced limited-partner investment capacity, diminished prospects at portfolio companies and fewer potential lenders have inhibited general partners. Secondary market funds were the only subsector that prospered in 2009, with record capital committed. However, consummated transactions remained limited, as large bid-ask spreads dampened optimism for deals. Private equity firms are now spending more time than in past years with their portfolio companies, bankers, limited partners and advisors, focusing on how to "survive rather than thrive."

Refinancing risk from leveraged buyouts has placed stress on portfolio companies, lenders and PE investors and sponsors. The buyout boom produced excesses such as subdued interest rates, weak covenants and abnormally high borrowing multiples. Rapidly escalating through 2014, a looming 'Wall of Debt' presents a challenge for portfolio companies as Private equity is already feeling the effects of increased government involvement. Investment opportunities in many sectors are shaped by regulation or taxation. Possible changes in how compensation is taxed and regulatory efforts to foster transparency in the PE industry have also captured the attention of PE insiders. However, the specter of financial reform has generated the most concern and is projected as the most potentially disruptive of government actions.

Private equity observers expect to see the roster of participating firms shrink, as continuing fundraising challenges force marginal PE firms in need of capital to either close or merge with other firms. This trend could be even more pronounced in the venture sector, with one-third of these firms expected to leave the market. Overall, the current climate will continue to provide numerous challenges but, if the economy continues to stabilize and credit becomes more available, 2010 could prove more fruitful, even in the new world order of private equity.

This conference was not open to the media or the general public. Participants were requested to use discretion in sharing the content of the conference with professional colleagues.