Coulter, Rubenstein look at PE of the future – AVCJ Forum

Coulter contrasted the debt-backed financial arbitrage deals of the 1990s with the current global predilection for transactions based on bringing operational value add. He sees this continuing, but with more emphasis on diversification, which he feels has been neglected in recent fund analysis. "There will be a movement back toward understanding the power of diversification," he said.

Highlighting the areas that TPG is following, Coulter emphasized the potential of buying loan portfolios from regional banks in the US and targeting Chinese savings. "This industry will come up with products that are interesting to these [Chinese] savers," he said, noting that 67% of individual savings in the country are still held in cash.

Rubenstein portrayed the global private equity industry as having traveled through three phases in the last decade or so. The balance of power has shifted from GPs to LPs in the wake of the global financial crisis and falling IRR, he observed. Co-investment is on the rise, average fundraising periods have risen from nine months in 2007 to 20 months today, and there has been a proliferation of vehicles for the mass affluent to access private equity, as well as increased government oversight.

The future will be one of greater public dissemination of fund performance information. This involves standardized approaches to calculating IRR and MOIC, a clear definition of "top quartile," and template partnership and subscription agreements. "If there is a standardized approach it would help make the fundraising process easier," Rubenstein said. "If the time spent negotiating agreements is minimized, more time can be spent investing the money."

He also expects to see governments compete to attract leading PE firms, especially in emerging markets, because their presence is seen as a sign of sophistication. This will lead to more incentives being placed on the table. Governments are also likely to facilitate the development of local private equity firms into global players.

Asia in particular will grow in significance, replacing Europe as the counterweight to the US. "Asian private equity firms will do what the US firms have done and go public," Rubenstein said. "Asian sovereign wealth funds will come to the fore and make more direct investments, including outside of Asia."

He also tips several leading Asian private equity firms to follow the lead of their US counterparts and seek public listings.

The Investment Summit forms part of the AVCJ Forum 2011 and Private Equity Week - Asia. It continues Thursday. For more information, please visit http://www.avcjforum.com. You can also follow events as they unfold via Twitter @AVCJ (hashtag #avcj and #avcjforum).

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• Topics
• Regulation
• Performance
• GPs
• TPG Capital
• The Carlyle Group
• David M. Rubenstein
• James Coulter
• USA
• Asia
• AVCJ Private Equity & Venture Forum