Intouch Spring/Summer 2008

With the finanical markets effectively shut for large management buyouts, some commentators are asking what this means for the future of private equity.

When answering this question it is important to differentiate between the secular and the cyclical. Over the past 30 years, private equity has steadily proved the advantages of  its model ownership for driving corporate growth. These advantages are intact. That said, clearly the cyclical crisis in wholesale markets is reducing the number of deals, and will continue to do so through 2008.

For 3i, it is ironic that we are starting see our strategy for growing assets prove successful just as the markets get difficult. But I remain confident in our ability create value. This is because we are growing our assets by deal size in existing areas such as buyouts, or by business expansion in areas such as infrastructure, where we have been careful to lay down resources over two to three years.

Partly in anticipation of tougher conditions for funding transactions, our buyout business line has created an in-house banking team, which has concentrated on building relationships with banks in the old-fashioned way. This is now proving foresighted. We are also fortunate enough to focus on mid-market deals, which are less affected by market difficulties.

Returning to the markets themselves, what we are seeing is an adjustment from a period of excessive financial liquidity. Even market participants were astonished by how easily they could raise large debt packages when liquidity peaked. Those days are over, but private equity will continue to evolve at an international level playing a positive and growing role in the global economy.