“The private equity industry is finally waking up to the fact that simply ignoring what is written and said about you just doesn’t work in our modern media-driven world,” says Guy Fraser-Sampson, a private equity expert at London’s Cass Business School and author of the bestselling book, Private Equity as an Asset Class.
“In both Europe and the U.S., the industry has done a horrible job of getting its message across, and is now paying the price for it in the form of continued negative publicity. It’s a real ‘head in the sand’ attitude that prevails.
“But everyone is missing the real point here,” says Fraser-Sampson. “The same investors who now are expressing reservations about the likely returns of mega buyout funds are the very people who made those funds possible in the first place by committing money to them.
“Since 2001, less than 6% of the world’s funds by number have attracted more than 70% of the available capital. This is hardly smart investor behavior, particularly given that there is a growing body of research that suggests there is a clear inverse correlation between fund size and fund returns. My bet is that most of the smart money has gone into the other 94%.
“After the puncturing of the venture bubble, we saw many venture firms dramatically reducing their fund sizes, in some cases ultimately by up to two-thirds. Now that we have seen the puncturing of the buyout bubble, will the big buyout firms likewise release two-thirds of commitments back to their investors? Or will they carry on drawing a management fee on money that was raised on the back of an investment model that is no longer valid?”