The earliest model for the private equity firm was little more than three guys and three telephones in one office. The aims of these prototypical GPs were highly opportunistic, and it wasn't clear whether their successes could be repeatable on a long-term basis. This was particularly so with regard to leveraged buyouts, which at the time had reputations as being more akin to financial tricks than to investments. When the high-yield bond market evaporated in the early 1990s, private equity was slowly revealed to be more flexible and permanent than many had previously imagined.
Today, the private equity investment strategy, defined broadly, is seen as being a legitimate, valuable form of investing, and one that can be repeated successfully through many different cycles, industries, sizes and geographies. It is therefore natural that an increasing number of firms would expand their operations beyond home borders. After all, a strategy that works in one location can, with appropriate intelligence and modifications, work in another. This was first validated by the many successful indigenous private equity firms that sprang up in countries around the world. As the largest private equity firms have sought to expand their franchises, they have added new strategies as well as pursued existing ones in new geographies.
Just as importantly, the underlying portfolio companies in which private equity firms invest must compete in a global market. A US middle-market buyout firm, for example, that may not previously have given much thought to becoming more active outside of the US may now find that the fate of its portfolio companies hangs in the balance if it fails to tap opportunities in Europe, Asia and elsewhere. In many cases this requires not just multiple trips abroad, but the establishment of offices and professionals abroad.
Keeping in mind that global expansion is not something that comes naturally to every GP, the December issue of PEI Manager examines the operations of five private equity firms that are already very global. We hope these profiles give you ideas for how best to plan for your own firm's international expansion.