Conference Presentation, Fireside Chat, Panel
Global Private Equity Outlook
Milken InstituteLeslie Picker, Leon Black, Bruce Flatt, Robert Smith, Jonathan Sokoloff, John Sokoloff
- Private equity is projected to continue expanding its role in the economy over the next 10 to 15 years, driven by secular forces, superior governance models compared to public markets, and a shrinking count of U.S. public companies (declining from roughly 8,000 to 3,700), though the number of public firms is not expected to reach zero.
- Industry strategy focuses on contrarian value creation and long-term holding, with firms like Apollo targeting distressed assets during downturns at multiples around 5.7x EBITDA with leverage ratios near 3.5x, while Leonard Green aims to own companies for extended periods, potentially exiting at lower multiples in three to four years.
- Brookfield intends to retain companies permanently within its portfolio, leveraging $100 billion of permanent capital and a presence in 30 countries to restructure businesses, while Vista Equity Partners aims to build an efficient software ecosystem and use balance sheets to enhance returns rather than generate them directly.
- Software is forecasted to remain the most productive economic tool for the next 50 years, with Vista and other firms capitalizing on ubiquitous digitization, IoT, and the fact that 98% of software businesses remain private due to their cash-flow generative nature.
- The global investor base is evolving with 50% of capital now international compared to 15-20% a decade ago, prompting LPs to rationalize portfolios by reducing manager counts from 80+ to 20-70 and shifting some institutions from short-term to long-term incentive structures.
- Sponsor-to-sponsor transactions are expected to comprise 30% to 40% of the industry, remaining among the highest-returning assets, while CFIUS regulations may expand under the current administration, and retail sectors face Darwinian turmoil where omni-channel adaptation is critical for survival.
- Geographic expansion strategies vary, with Brookfield aggressively building in Asia expecting half of global GDP to reside there within 35 years, while Apollo moves selectively due to high prices and control issues, and Vista utilizes a "one Vista in Asia" strategy to facilitate cross-border product sales.
- Performance dispersion in the industry remains wider than other asset classes, with top quartile firms outperforming the S&P by 1,000 to 1,500 basis points, underscoring the continued importance of manager selection and the expectation that new sovereign capital will emerge from Asia and the Middle East.
- Operational tactics involve deep integration of technology, with Vista leveraging data tools and relationships with over 800 investment banks, Brookfield driving increased tech adoption across all operations, and firms generally prioritizing underwriting factors under their control over growth market sustainability bets.
- Risks include potential business failures for heavily leveraged firms disrupted by competitive dynamics where debt restructuring may be ineffective, as well as the need for firms to adapt to changing trade routes and specific regional regulatory environments.