Trends in Private Equity

Abstract

The author starts with the observation that there has been a distinct change in the private equity market. What was previously thought to be a segmented, inefficient marketplace has turned into an efficient, auction driven asset class. Defining private equity as comprising the market for leveraged buyouts and corporate restructuring and excluding other segments such as venture capital, mezzanine debt, and distressed debt, the author reviews the current state of the private equity market, observing trends such as the increasing prevalence of auctions, the growing role of secondary purchases, and even the internationalization of the marketplace, and draws implications on return expectations. He considers a few interesting new trends such as a focus on middle market deals, business development companies, and the cross-over between private equity and hedge fund offerings. He concludes with the view that the competitive environment for private equity firms has changed significantly, forcing private equity firms to seek new sources of revenues and businesses, but one should be careful to note that the skill sets needed to extract value from a privately run operating company versus the skill sets needed to extract trading/arbitrage opportunities from publicly traded securities are very different.