EisnerAmper’s fifth edition of The Pulse of Private Equity, its biannual research report based on survey results from private equity fund executives, showed that closing deals in private equity remains a challenge while smaller or less established funds in particular struggle to raise funds.
“Economic uncertainty, market volatility and debt-market conditions continue to create a yet-unbridged gap between buyers and sellers, making closing deals difficult,” said Howard Cohen, chairman of EisnerAmper. “With worldwide political and financial crises fueling uncertainty, the private equity market will likely continue to be unstable for the foreseeable future. Limited partners are looking at management’s performance in overseeing these investments and their ability to find and close on new deals more closely than ever.”
More than 140 fund executives (almost entirely from funds located in the United States) responded to the survey, which measured fund and portfolio activity, debt availability, employment and limited partners’ interest in fund management and compensation; among other items.
Consistent with the findings from the spring 2012 Pulse of Private Equity, private equity executives believe limited partners are most concerned about fund management’s ability to execute, helping to explain the firms’ growing and active roles in their portfolio companies. For private equity executives, their current portfolio companies remain a priority along with new transactions; both concerns reflect a focus on overall execution.
The Report finds that even with the very slow start during the first half of 2012, private equity executives anticipate at minimum the same, or increased acquisitions and exits for the second half of the year. While respondents said that deals sourced would increase, they felt deals closed would remain the same. In a small show of optimism, few felt deal flow would decrease. Of note, with regard to acquisitions, closings and competitive bidding activity respondents were more optimistic in their outlook for the industry as a whole than they were for their own funds.
Click on The Pulse of Private Equity to access the entire report.
Continuing a trend, The Pulse of Private Equity reveals that fewer respondents expect the availability of debt financing to increase; more expect it will stay level as compared to the first half of 2012. In terms of fundraising the marketplace is facing the very real phenomenon of dollar concentration where a few funds are raising most of the dollars. Institutional investors are supporting large brand name firms and closing the deals quickly. The competition and scarcity of money for smaller and less established funds lengthens their fundraising cycles and limits the development of newer groups.
Interest in Compliance Rises, Hiring Does Not – LP Focus Will Limit Executive Pay in Sector
Mike Laveman, a partner in EisnerAmper’s Financial Services practice notes a trend from the previous Pulse of Private Equity report regarding fund executives’ interest in compliance. “While firms have not been increasing their hiring in compliance, regulatory and tax complexities are leading to more reliance on third party service providers.”
The Report also asks questions about limited partners’ interest in executive compensation. James Hatch, partner-in-charge of EisnerAmper’s Human Capital Advisory practice, states “That while fundraising competition impacts fee negotiation, the increased scrutiny of executive compensation has not yet been fully recognized,” and that results from the Report indicate “that fund executives can expect far greater interest by investors in all forms of Managing Director compensation.”