Open for business (Editor's Letter)

Private equity will emerge from the current downturn a transformed industry in many respects. One change will concern valuation practice, which is approaching something of a tipping point at present. You can read all about this in Jennifer Harris’ excellent San Francisco valuation roundtable discussion. Where once GPs thought that the rigmarole surrounding fair value documentation would eventually go away, it is now clear that these exercises will be a quarterly – or at least annual – fact of life.

But like all the headaches that signal a new stage of life – homework, paying a mortgage, taking Lipitor – firms will embrace quarterly valuations, and the best will excel at this and make it part of an overall culture of investor relations excellence.

This broader topic of IR was dissected at last month’s PEI Investor Relations & Communications Forum in New York. In addition to the broad recognition that fair value was here to stay, below were some key takeaways from the well-attended and well-reviewed event:

• Most US private equity firms will have to register with the SEC: It is unclear exactly what new regulatory changes lie in wait for private equity, but it is hard to find an expert on the topic of securities regulation who doesn’t believe that SEC registration for all but the smallest private equity (and hedge fund, and real estate) firms is inevitable.
• Firms will need to be much more open: Bad times call for more information and more consistency in how the information is presented. Make sure all your GPs are reading from the same playbook. Once the bad times recede, the systems set up to deliver transparency will not go away.
• Non-ostentation is in fashion: Meetings need to be just the facts, private jets will be called into question, the new office in Majorca is to be resisted.
• Building a brand is very difficult: GPs who think that a bare-bones website and a Rolodex will carry them through increased competition may have another thing coming. A sustained effort to stand apart is barely sufficient to make it in today’s business environment.
• Let your portfolio companies tell their stories: Winning the affections of lawmakers, regulators, the press and, most importantly, LPs, will be accomplished through unleashing the power of your stable of CEOs who can give first-hand accounts of value added and jobs created. As soon as possible, private equity firms need to introduce these CEOs to their local lawmakers, most of whom have no idea which local companies are owned by private equity.

Enjoy the issue,

David Snow
david.s@peimedia.com