Ropes & Gray attended the SuperReturn International conference in Berlin last week, which attracted over 5,000 decision makers from the private markets industry who came together to share their outlook for 2024 and beyond.
Operational excellence
Operational excellence was the most repeated phrase on the lips of key panel speakers at SuperReturn this year. PE houses are emphasising their ability and willingness to roll up their sleeves and integrating experienced operating professionals with businesses to drive operational improvements and margin growth. The ability to attract the best operational talent that can make a difference in the board room and in the day-to-day business is clearly a key selling point that GPs are pointing out to investors to try and differentiate themselves from the competition.
A message to LPs
A message clearly coming through from GPs on centre stage at SuperReturn was one to manage LPs' expectations. Scott Kleinman of Apollo did not sugar coat things when he said the industry is watching the "pig [as it] moves through the python".
Over-valued assets from 2020/2021 are not going to translate to the types of PE returns enjoyed by many in the years up to 2022. Lower valuations and the importance of maintaining price discipline alongside a balanced deployment strategy in terms of sector exposure and timeline are just a handful of factors that will be prominent in a GP's playbook of successful deal-making.
In addition to talking about employee ownership, Pete Stavros was keen to emphasise that KKR's lineal deployment – 20% of the fund each year – is a strategy that he feels helped KKR avoid the 2020/2021 over-deployment he believes many peer firms are suffering from.
Impact of AI on the PE industry
The impact of AI on the PE industry and at portfolio company level was another repeated theme. Investors were sharing their thoughts on the level of capital investment required to build the right infrastructure and there appears to be a consensus that the required level of investment has been dramatically underestimated to date. The need to develop and nurture talent with operational experience to integrate AI solutions to businesses is also something that investors are on the lookout for as there appears to be no doubt that AI will have a seismic impact on the investments in today's PE landscape.
The rise of the secondary markets: A path to returning liquidity
The secondary markets where investors can trade existing stakes in funds remained a hot topic and a lively discussion was had about whether the secondary market could grow to $1 trillion by 2030. According to Bain & Co., secondary transactions grew faster than any other asset class in 2023 up by around 92% in capital raised as compared to 2022. As a result of the uncertain macroeconomic environment and private equity M&A, secondary transactions have been a more viable path to returning liquidity to investors.
Optimism amid challenges: The outlook for PE deal makers
Overall, there was more optimism in the air for the private equity deal makers compared to last year's conference. There is no question that these are not easy times for fundraising and closing buyout deals, but investors seem to agree that we are moving to a base case of a softer economic landing with PE sponsors poised to transact when the right asset presents itself.
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