Introduction to Private Equity: Venture, Growth, LBO and Turn-Around Capital, 2nd Edition

8

General Conclusion – Private Equity Today and Tomorrow

The private equity sector is bracing for a difficult few years, which are expected to lead to a restructuring of general partners. A wave of mergers is expected. BCG/IESE announced the disappearance of 20% to 40% of fund managers within two to three years after the publication of their report in December 2008 (see Meerkatt, Liechtenstein, Prat et al., 2008). Though this prediction never materialised, there are some signs that the sector is concentrating. The phenomenon is related to disappointing track records, a lack of critical mass of assets to manager, as well as increased regulatory constraints which are difficult to match. This could also generate adverse conditions for emerging managers, and hence reduce the incentive to innovate in terms of investment strategies.

8.1 FEWER GENERAL PARTNERS, BUT NOT NECESSARILY BETTER ONES

Indeed, the concentration of the sector has already started, although more quietly and at a very slow rate. The reason is that general partners can count on management fee streams for a certain time before they run out of activity. According to Preqin, 90 general partners disappeared in 2009 (only 14 disappeared in the aftermath of the Internet bubble burst); 183 were in run-off mode in 2011 (with 130 new managers appearing), with 4146 remaining in activity. This is the first time in history that the number of general partners decreased in absolute value (Figure 8.1).

FIGURE 8.1 Number of active ...