Risk Capital Partners' Luke Johnson believes private equity remains a 'seller's market' with a 'huge weight of money to be invested'.
The entrepreneur, one of Britain's leading businessmen, spoke in front of an audience of nearly 500 at the Guernsey Funds Forum in London last week [12 May].
"The current climate, unlike quite a few asset classes, which I think are struggling perhaps, is still probably more of a seller's than a buyer's market for the right type of asset that would appeal to private equity buyers. There is a huge weight of money to be invested," said Mr Johnson.
He said Guernsey's private equity industry had played a part in raising or administering a large proportion of these funds, while the fundraising climate generally seemed as good as it had ever been.
"There's obviously been a big comeback of banks and bonds and so forth, willing to lend to private equity deals, which is good for the industry, as long as people don't get overexcited," said Mr Johnson.
"There is this growing appetite, amongst many different institutional investor types, to become Limited Partners and to invest in this asset class, from more and more pension funds to sovereign wealth funds and so forth. I think that the expansion of the alternative asset class is great news. I think it's good news for Britain, because we are a world player and it's obviously good news for Guernsey."
Mr Johnson urged private equity managers and their firms to continue concentrating on adding value.
"We've got to focus on adding value, making a difference, not quick flips, and not exclusively financial engineering. I think that game's actually over and I think that leads to trouble politically and otherwise. I think private equity leaves itself open to criticism if that's really how they make their money. If you look at the returns and compare it against other asset classes, I would argue that the outperformance derives from added value, not from leverage and it's important that private equity managers and firms see that, I believe."
He also warned against private equity investing in what he described as incendiary sectors, political or otherwise, such as care homes.
"I think they make themselves open to criticism if they invest in sensitive areas and then treat it as a purely commercial transaction, without regard to the stakeholders as a whole," said Mr Johnson.
"I think private equity, to a degree, considering how much money it manages and the amount of industry and jobs that are connected with private equity-owned businesses, has been relatively fortunate to date that it has not suffered even a tiny fraction of the sort of criticism that the banks have laboured under for the last eight years or so. I'd like to think that's because we are investing, we are helping to create jobs and we are innovating. But I think that the industry should be under no illusion, things can turn. It needs to be thoughtful."
In addition to Mr Johnson's keynote speech, the Guernsey Funds Forum hosted two panel sessions. The first looked at innovation in the funds arena and the second focused on investor perspectives including a focus on environment, social and governance investment and whether the depositary should be seen as a 'value-add' or a burden. The event, which took place at etc. venues, 155 Bishopsgate, London, was hosted by Guernsey Finance in conjunction with the Guernsey Investment Fund Association (GIFA). It also saw ITV News anchor Alastair Stewart OBE act as moderator.
Guernsey Finance Chief Executive Dominic Wheatley said the calibre of the speakers and the content of the panel sessions, in addition to Mr Johnson's keynote speech, had all contributed to a successful event.
"As a whole, the event demonstrated an ongoing commitment to the Guernsey funds sector which in turn reflects the Island's continued relevance in the international funds industry. It was very encouraging to hear from a number of panellists about how Guernsey continues to evolve its offering and is therefore able to ensure it meets industry needs. It was also pleasing to hear Luke's detailed explanation on the economic benefits of private equity, which reaffirms our belief that private equity is a force for good in the economies into which Guernsey funds invest."
The event was supported by the Alternative Investment Management Association, the British Private Equity & Venture Capital Association, Alpha Journal, Funds Europe, HFM Week and PERE.
For more information about Guernsey's finance industry please visit www.guernseyfinance.com.
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