A vast international conference of industry participants might not seem a likely occasion for introspection. Yet this is precisely what is required at the Super-Return International meeting in Berlin this week, one of the big events in the private equity calendar. In recent years, perhaps understandably, this meeting has enjoyed a heady atmosphere of confidence bordering on celebration. It was a venue where, not long ago, senior figures in private equity wondered aloud whether, or possibly simply when, a $50bn (€38bn, £35bn), even $100bn bargain might be brought home by one or more of them.
Such stargazing in the current climate would be little short of ludicrous. Absolutely everyone involved in private equity recognises this in an individual capacity and there would be every advantage in acknowledging it collectively. To do so does not mean conceding to critics that the private equity model is “broken”. There was never a single private equity model as such to break. Private equity does, however, need to accelerate its renewal and Berlin can serve as a vital step in that process. There are three respects, in particular, in which I think the sector needs to embrace fully the post-leverage era.
The first relates to tone. Senior figures in private equity never asked for, courted, let alone invented the “masters of the universe” accolade that some attached to it. We did not necessarily repudiate such an association with sufficient force either. There were fantastic achievements recorded at the peak of the boom and it is manifestly not the case, as certain camps contend, that debt is the only legacy of that amazing period. Yet private equity would be wise not to claim more than it can deliver. There is a robust argument that its alignment of the interests of investors and management accounts for its tendency to outperform publicly quoted vehicles, but it should not assume the mantle of Moses.
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