Conference Presentation, Panel
Private Equity: Rebalancing Risk
- Leon Black anticipates strong reception for private equity fundraising driven by favorable market conditions, predicting international participation will rise to 40–45% by 2014, up from historical U.S. dominance, with significant capital commitments expected from sovereign funds and institutions in the Middle East and Far East.
- Regulatory impacts are viewed differently by speakers, with Leon Black expecting zero effect on private equity returns despite increased operating costs, while the credit side is seen as benefiting from regulatory shifts that enable the replacement of banking roles, though Leon Black notes the Fed's fixed income policies are creating valuation distortions in public equity versus private debt.
- Jonathan Nelson predicts the Comcast and Time Warner Cable merger will proceed due to pro-consumer framing, expecting a five-plus-year disruption from the broadband shift and Millennial preference for tablet viewing, while anticipating the Supreme Court will disapprove Aereo, potentially protecting $2.5–3 billion in network EBITDA, and foreseeing content creators revising their scale definitions in response.
- John Donahoe describes the current economic environment as highly uncertain for consumers, noting retail slowdowns despite sales growth since 2008, with weather patterns expected to force later discounting and continued internet adoption pressuring conventional retail, while success in Vietnam, Indonesia, and potentially Brazil is attributed to operational value add beyond mere capital.
- David Bonderman forecasts high asset prices due to historically low interest rates and predicts a better selling than buying environment for 2014 with a four-to-one realization-to-deployment ratio, while expecting interest rates to remain low until the end of 2015 and Europe to offer high returns in the high teens to low 20s via bank deleveraging and the shale revolution creating capital shortages in energy.
- Concerning emerging markets, David Bonderman expects dry powder to outpace deals in Asia leading to volatility and advises a long-term view on currencies and politics, suggesting Chinese markets could be attractive at lower P/E ratios, whereas Jonathan Nelson predicts these markets will be a "great disappointment" with returns underperforming developed markets over periods up to twenty years due to overcapitalization and uncorrelated GDP growth.
- Investment strategies diverge on regional focus, with Leon Black minimizing emerging market exposure except for a joint venture in India targeting stressed situations, while John Donahoe highlights situational success in Vietnam and Indonesia and David Bonderman identifies specific high-risk countries as off-limits due to legal frameworks.
- Media and structural trends indicate potential disappearance of the traditional newspaper industry, regional sports networks becoming prime assets due to broadcast rights, and the improbability of private equity firms acquiring professional sports teams due to mismatched fund cycles, alongside a prediction that Europe will experience "low growth forever" with over a trillion euros in assets exiting bank balance sheets.