Opportunities in a stormy environment

In the first half of 2011 in particular, the optimism in the stock markets had also spread to the private equity sector. The German Private Equity Barometer showed that expectations had exceeded the peaks of the boom years, and the assessment of the current business situation followed this trend. It was not until the slump in August that disillusionment returned. Economic growth is slower and credit markets remain fragile for the time being.

For many years, capital concerns were a foreign word in the private equity industry. Banks and other lenders were happy to lend on very favorable terms and easier conditions. However, the economic and financial crisis did not leave the private equity industry untouched. Today - in a stormy environment - the equity share has risen to over 50 percent and, as a consequence, many private equity funds have realigned their business model to focus more on strategic and operational optimization of portfolio companies rather than just cheap debt capital.

The typical private equity business model also shows some strengths, especially during the crisis: These include substantial capital reserves collected by funds during the good times, strengths in management quality and practical experience with restructuring. - It is striking that the volume of buyouts has slumped much more sharply and is recovering more slowly than the number of transactions. The business has automatically turned to smaller and medium-sized and thus more manageable transactions. Aggressively financed mega-buyouts are rarely feasible at present. As a result, many buyout funds now have large capital reserves that they had collected before the crisis and could no longer invest. These capital reserves had a stabilizing effect, enabling the funds to support portfolio companies and replace missing debt capital in transactions. Well-positioned and new private equity funds could therefore benefit from a weak economy. - Returns have also held up respectably compared to other asset classes.