Time of uncertainty is time of opportunity for private equity, says PricewaterhouseCoopers
Singapore, 17 October 2008 - A new report from PricewaterhouseCoopers highlights the need for private equity firms to diversify and differentiate their businesses through this period and outlines the key challenges the industry must address in order to respond to today’s contracted markets.
The report, titled ‘ Seeking differentiation at a time of change ’, reveals that larger funds are broadening their investment criteria and geographical horizons. The holding period for portfolio companies is extending and private equity managers are demonstrating active portfolio management with this in mind.
“The private equity industry is witnessing a dramatic downturn in deal activity and is suffering from a lack of leverage caused by the turmoil in the financial markets. This has a major impact on the ability to finance larger transactions but also creates a lack of buyers for existing portfolio companies. Private equity players will need to adapt to the longer holding periods by looking at how they create value for portfolio companies,” said Ong Chao Choon, Asia Pacific Transactions Leader, PricewaterhouseCoopers.
Among the key findings, the report highlights the need for sustainable growth and diversification and examines the growing pressure on fair value accounting and mounting tax risks. Shifting economic conditions are strengthening the motivation for building diversified stables of investment strategies but the report shows that this must be accompanied by appropriate controls. Private equity players are considering and implementing the diversification of investment strategies in infrastructure, distressed debt and emerging markets. It also looks at the opportunities, and accompanying risks, for private equity in the BRIC economies.
The report also showcases comprehensive global investment and fund-raising data for 2007. In total, some US$297 billion of private equity and venture capital was invested in the year, up 26% on the 2006 level of US$235 billion.
In Asia Pacific as a whole, private equity investment rose by 36% to US$86 billion in 2007, which was equivalent to 0.68% of GDP.
In Singapore, private equity investment surged by 157% to US$5.35 billion. It recorded a growth of 33% in 2007, the eighth highest in the world. Particularly, Singapore featured prominently as a destination for high-technology investment, attracting US$2.89 billion in 2007. This placed Singapore as the third most popular destination in Asia Pacific, outranked only by India (US$5.17 billion) and Korea (US$3.18 billion).
Notes:
1. About PricewaterhouseCoopers – Globally
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