Conference Presentation, Panel, Fireside Chat, Interview
New Directions in Private Equity
Milken InstituteLeon Black, David Bonderman, Jonathan Nelson, Jonathan Sokoloff, Scott Sperling, Maria Bartiromo
- Macroeconomic uncertainty, specifically regarding storm clouds on the horizon and a disconnect between Main Street and Wall Street, is expected to keep M&A activity softer than predicted and maintain a gap between buyers and sellers for the foreseeable future, with a recommended pause on capital deployment.
- Interest rates are projected to remain low for 12 to 18 months under current Fed policy, while average U.S. transactions priced over $500 million require assumptions of sustained low rates for five years and robust growth to justify current valuations.
- U.S. equities are anticipated to become increasingly concentrated as corporate America remains cash-generative, fueling massive share buybacks that shrink equity capitalizations, alongside a forecast that high multiples similar to the 2007 era could emerge from low-price debt factored into valuation models.
- Global growth is characterized by low growth and low risk, with the United States viewed as the primary "safety" destination for capital flows while emerging markets reemerge selectively, such as oversold China versus pricey Indonesia, and natural resources offering long-term upside.
- Specific regional outlooks include Europe's transition toward prioritizing social stability over growth with a long-term balance sheet shrinkage of $2 to 3 trillion for banks, and Japan facing severe demographic challenges that will make the population older than the current speaker.
- Investment strategies favor large funds over small ones, with a focus on buying minority stakes in great businesses, targeting 9 to 10 times EBITDA for potential multiple expansion to 12–25 times, and leveraging distressed opportunities in cyclical industries.
- Future success in private equity is predicted to rely increasingly on differentiated knowledge bases, IP, and strategic networks rather than merely supplying risk capital, with a specific emphasis on the rising value of sports and premium content franchises.
- A significant supply of approximately 6,500 companies in private equity portfolios is expected to re-enter the market over time as buyout targets, driven by the need to resolve supply-demand dynamics and create transactions through joint ventures.
- Limited partners are expected to remain under-allocated to private equity, potentially driving performance metrics toward larger funds, while investors are cautioned against conflating GDP growth rates with return on equity and are advised to invest in North American-domiciled companies with global operations to mitigate direct emerging market risks.
- Disinflationary or deflationary pressures in Europe and the U.K. are expected to persist, with the U.K. economy turning over a 5 to 7 year investment cycle, justifying entries into sectors like fast fashion, while the shale revolution creates opportunities for private equity returns as large energy companies sell off proven U.S. reserves.