Dorothy Kelso, Global Private Equity Strategy Director at SuperReturn takes us behind the scenes at SuperReturn International 2017 with her top insights.
SuperReturn International’s 20th anniversary this year was marked by a record 2200 people in attendance, of which 500+ were LPs and 850+ were GPs. In a way, the conference reflects the stellar growth of the private equity industry over the last two decades, with attendees growing 27-fold from 80 in 1997 to 2200 in 2017. Across four days of private meetings, networking sessions and on-stage discussions, some key themes kept emerging.
Geopolitics
This was certainly top of attendees’ minds. The possible impact of the Trump presidency, Brexit and elections in Europe were discussed at length, with almost every permutation of possible outcomes to the private equity industry globally being assessed. Ultimately, it boiled down to the fact that it was still very much business as usual in private equity, with investment models being re-worked (perhaps more frequently than usual in the current climate), money being put to work across the world and exits successfully being made.
Regions
We asked delegates at the conference to rank which regions of the world they believed would produce the strongest investment returns over the next five years. The results, being released here for the first time, are as follows:
1. North America (44% of respondents)
2. Asia (22%)
3. Europe (18%)
4. Africa (10%)
5. Latin America (6%)
While North America coming top might be no surprise, it is notable that Asia was ranked above Europe. This mirrors informal conversations we had with some conference attendees who said that Emerging Markets are firmly back on their agenda again, believing the bad news has bottomed out and that opportunities in these markets are relatively attractive price-wise compared with developed markets.
Sectors
In another poll we conducted at the event, we asked delegates which industry sectors were likely to provide the most rewarding risk-adjusted investment opportunities over the next five years, given the dislocations created by the current macroeconomic and political environment.
Technology came top of the list by far, with a whopping 40% of respondents choosing it as the most attractive sector. Other sectors ranked in the top five were Healthcare, Financial & Business Services, Infrastructure and Energy. Although the choice of sectors was in part determined by respondents’ preferences and no information was captured to determine any potential sample biases, it does highlight the ascendency of Technology (which has cross-sector application) as an investment strategy in the private equity industry.
Venture Capital
The oft-overlooked venture capital industry was given centre stage at SuperVenture, a standalone 2-day event which we organised for the first time this year alongside SuperReturn International. In a packed conference room, often with standing room only, we found out through presentations and panel discussions that, for example, there are now more internet users in Asia than in the USA; there is a bigger pool of repeat entrepreneurs in Europe making it an increasingly promising market for early stage investments; and that it is not always obvious which sector an early stage company will end up serving (because its business model is still evolving).
GP fees
The often thorny issue of fees kept cropping up on stage and in one-to-one discussions. Should GPs charge fees on invested or committed capital? What types of fees are hidden in the small print? What should hurdle rates be? In fact, another poll we took at the conference indicated that 48% of respondents felt that the level of GPs’ fees was currently the biggest cause of friction between LPs and GPs.
Performance
Many delegates at the conference said that high valuations are likely to result in lower performance for current vintage funds. GPs are employing a host of strategies to boost IRRs, and emerging markets are back on the agenda (for GPs and LPs) as a means of securing higher returns.
LP co-investment and direct investment activity
Nearly half (45%) of delegates polled at our conference thought that the demand for co-investments and the trend towards direct investment activity by LPs would have the biggest effect on the shape of the industry over the coming years.
GP investment strategies
Competition among GPs, and from LPs, means that GPs are increasingly having to re-think their investment focus. A fifth of delegates polled at the event highlighted broader GP investment platforms with multiple investment strategies as likely to significantly impact the shape of the industry in the medium term.
In conclusion this year’s conference was, as usual, full of energy, optimism and dynamism, and, 20 years on, continued to demonstrate how private equity and venture capital innovates and evolves in changing market conditions, proving the industry is as entrepreneurial and quick-footed as ever.