A Private Equity Perspective

Transcription

1 Transforming Crisis to Opportunity for Greece A Private Equity Perspective Saki Georgiadis 26 October 2010

2 Private Equity a mainstream asset class Global Buyout Deal Value ($bn) RoW Asia Europe North America Top Pension Fund Allocations to Private Equity 2 Target Allocation Top Five European Funds bn % ABP % Stichting Pensioenfonds Zorg en Welzijn (PGGM) % Universities Superannuation Scheme % Railpen % 7.5% West Midlands Pension Fund % Total Global Buyout Deal Value, Target Allocation 9.3% 2.6% North America Europe Asia RoW $1.7 trillion Top Five US Funds $bn % CalPERS % CPP Investment Board % 1% CalSTRS % Washington State Investment Board % 44.0% 44.1% New York State Common Retirement Fund % 1 Source: Bain & Company, Global Private Equity Report Source: Preqin, as at 12 October

3 What is Private Equity? Privately (non-exchange) negotiated transaction involving equity ownership stake Long term, illiquid investments (3-7 years) at all stages of company s life cycle Investments requiring control over company s management and strategy board (active) participation Buyouts (Mature Stage) Company Revenues Growth Capital (Expansion Stage) Venture Capital (Pioneering Stage) Time 3

4 Current Macro Backdrop The world is over-leveraged Net US Government Debt and Structural Budget Deficits, 2009 Especially the Sovereigns Government deficit and Debt/GDP Ratio (2009 estimate) Source: Morgan Stanley, 2008 Source: Eurostat 4

5 Current Macro Backdrop Lower Trend Growth in the West US 10 Year Average GDP Growth Rate Stock Market Valuations becoming expensive MSCI EM, US and EU Indices 160% 120% 80% MSCI EM MSCI US MSCI EU 142% 74% 85% 40% 0% -40% -80% -18% -24% -34% 5Y Peak to Today 5Y Trough to Today Source: Thomson Reuters Source: Bloomberg 5

6 Macro Outlook- The new normal Deleveraging will need to take place Lower growth in the West/ Higher in EM but lower than previous years Inflation will increase Currency Volatility / Trade Protectionism Re-regulation 6

7 But Equities are relatively well positioned Bond Yield relative to Equity Yield Equities attractive Bonds attractive ti The earnings outlook remains uncertain, but equities look relatively attractive US Bond Yield / Equity Yield UK Bond Yield / Equity Yield Source: Thomson Reuters Global Financial Asset Class Returns since September 08 OECD equities and commodities have been shunned during the financial crisis of the last 2 years Source: Independent Strategy/Clessidra SGR 7

8 Implications for Private Equity 2x Less Leverage High Valuations Lower Growth 1x Acquisition Price Top-line Growth Margin Improvement De- Leveraging Multiple Arbitrage Exit Value 8

9 Why does Private Equity produce superior returns? There are significant underlying factors that enable Private Equity to deliver superior returns as an asset class ment Enhancem Equ uity Value Deliver operational improvements Apply flexi ble and proactive ownership style Align interests of owners and managers Provides capital structure flexibility to optimise equity returns Bring sector-specific expertise to the company Target inefficient or undervalued businesses Private Equity works best when structural changes are required 5

10 Relevance of Private Equity to current Greek environment Companies will need capital Companies will need support to adapt their Greek and international corporate strategy in current times of low growth PE can bring skills to access foreign and inorganic growth opportunities Industry/regulatory t restructurings t For example, Closed professions Private ownership positive in periods of higher volatility. Mgt focus. Distress Some quality companies will need support tto remain as a going concern 10

11 Important Information This communication is directed only at recipients who are eligible counterparties or professional clients, as defined in the Glossary to the Financial Services Authority s Handbook of Rules and Guidance. Any investment or service to which this communication relates is only available to and will only be engaged in with such persons and any other persons who receive this communication should not rely on or act upon this communication. This communication is issued and approved only for the purposes of section 21 of the Financial Services and Markets Act 2000 by Hermes GPE LLP ( Hermes GPE ). Hermes GPE has its registered office at Lloyds Chambers, 1 Portsoken Street, London E1 8HZ, United Kingdom. Hermes GPE is a registered investment adviser with the United States Securities and Exchange Commission and authorised and regulated by the Financial Services Authority. This document has no regard to the specific investment objectives, financial situation or particular needs of any specific recipient. This document is published solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. Prospective investors must rely on their own examination of the legal, taxation, financial and other consequences of an investment in the funds, including the merits of investing and the risks involved. Prospective investors should not treat the contents of this document as advice relating to legal, taxation or investment matters. Before entering into an agreement in respect of an investment referred to in this document, you should consult your own professional and/or investment advisers as to its suitability for you and should understand that statements regarding future prospects may not be realised. No action should be taken or omitted to be taken in reliance upon information in this document. Figures, unless otherwise indicated, are sourced from Hermes GPE. The opportunities described in this document have unique risks that may make them unsuitable for certain investors. This communication indicates where figures used refer to past performance or simulated past performance. Past performance is not a reliable indicator of future results. Also, certain returns shown in this document are compared against returns for the relevant benchmark index during similar periods. It is important to note that the underlying volatility and risk of the funds portfolios and that of their benchmark indices vary materially. This communication contains forecasts of future performance. Such forecasts are not, however, a reliable indicator of future performance. Any person wishing to subscribe for any interest should satisfy himself as to the observance of the laws of any relevant territory, including the obtaining of any requisite governmental or other consent and the observing of any other formalities. Private equity funds tend to be closed ended and to have a finite lifespan. During the life of the Fund it is usually not possible for the Fund to redeem its investment. Therefore, if the Fund invests in a private equity fund, it may be several years before the Fund sees any sort of return on the investment. While returns may be higher than standard investments, investments in private equity funds involve a high degree of risk and are only suitable for investors who fully understand and are willing to assume the risks involved. The returns are dependent on the performance of the companies in which the fund invests and, in turn therefore, largely dependent on the manager of the fund's ability to influence that performance. Investors in private equity funds are exposed to potential loss which could involve the complete loss of investment. 11