There is an emerging consensus amongst economists that the duration of the current credit squeeze will extend years rather than months. The adjustments required throughout the financial-services industry are widely seen as dramatic and complex—and will require time to implement.
Given the breadth and depth of the current crisis, root-and-branch reform of the entire financial-services sector is clearly on the cards. The private-equity industry is no exception, and our survey points to an awareness of the industry’s need to re-examine itself, even if it has not yet reached any definite conclusions as a result of that process. Consolidation of private-equity firms is clearly one expected consequence of the crisis, but industry executives are just as clear that financing models will have to change appreciably.
When it comes to choosing investment targets, traditional strategies are likely to remain the norm for most private-equity firms during the downturn. Nonetheless, a significant minority of surveyed firms display an appetite for adventure—even assuming a reduced number of deals.
A large number of private-equity executives plan to take a more hands-on approach to the management of their portfolio companies than heretofore. The purpose, of course, is to increase the value of each investment prior to exit. For the largest share of executives in the survey, the firm's management approach will not change—41% say they always engage closely the management of portfolio firms to extract maximum value. But another 33% plan to engage more closely than they have, whether it is because they simply have more time to spend in advising portfolio firms, they are seeking extra cash due to the firms' performance or due to some other objective.
Before the crunch, private equity represented the Holy Grail for many financial-services professionals, alongside hedge funds. In the wake of the credit squeeze, however, the majority of private-equity firms will not surprisingly be more cautious in hiring. Little more than one-quarter of respondents (26%) say they plan to increase the hiring of private-equity professionals in the current environment.
