Chicago, IL – January 24, 2011 – The majority (56 percent) of private equity fund managers are receiving new commitments from Limited Partners, according to findings from the second annual PErspective Private Equity Study by BDO USA, LLP, one of the nation’s leading accounting and consulting organizations. That’s compared to only 40 percent of respondents who reported receiving new commitments from LPs in last year’s study. Firms indicate they are receiving the majority of first-time financial commitments from family offices (40 percent), pension funds (30 percent) and international investors (17 percent).
"U.S. private equity fundraising faced significant challenges in 2010, but as deal flow turns around, firms are beginning to see Limited Partners again willing to commit capital to private equity investments," said Lee Duran, Partner and Private Equity Practice Leader at BDO. "However, valuations continue to be a concern among fund managers and despite positive news for fundraising, many are extending their exit timelines as they wait for the gap between seller and buyer expectations to close."
In fact, BDO’s PErpsective Study found that 70 percent of respondents currently expect their average holding period to be longer than 12 months ago – with the most (37 percent) extending average exit timelines by 12 to 18 months and another 22 percent extending average exit timelines by 18 to 24 months. When asked how their exit assumptions have changed, 25 percent report an increased focus on sales to strategic buyers and 16 percent report an increased focus on sales to financial buyers. Only 4 percent report an increased focus on IPOs.
At the same time, pricing emerged as a primary concern for 2011 among private equity fund managers with 25 percent of respondents indicating that, in addition to portfolio performance, pricing is their primary concern during the next 12 months. That’s compared to just 14 percent who identified pricing as a top concern in last year’s study and second only to the identification and quality of targets, which was identified by 36 percent of respondents as their top concern during the next 12 months. Another 11 percent identified the availability of leverage as their primary concern for 2011, which is down from 39 percent who said the availability of leverage was their top concern in last year’s study.
"As credit markets continue to thaw, private equity fund managers are turning their focus to the overhang of companies in their portfolio, looking for ways to exit their investments and generate liquidity for fund investors," added Kenneth Csaplar, President and Managing Director at BDO Capital Advisors, LLC (a middle market boutique investment bank and an affiliated company of BDO USA, LLP).
Hiring is on the Rise at both the Operating Company and Fund Level
In good news for the jobs market, BDO’s PErspective Study found that private equity fund managers plan to increase hiring in the coming year at both the operating company and fund level. More than three in five (63 percent) respondents plan to increase professional staff headcount at the operating company level during the next 12 months versus only 45 percent who increased headcount in the past 12 months. In addition, nearly half (47 percent) plan to increase administrative staff headcount at the operating company level in the next 12 months versus only 28 percent who did so during the past 12 months. At the fund level, 42 percent of respondents plan to increase fund employee count during the next 12 months versus only 35 percent who did so during the past 12 months.
These findings are from the second annual BDO USA, LLP PErspective Private Equity Study, which was conducted from November through December 2010 and examined the opinions of more than 100 senior executives at private equity firms throughout the U.S. with $30 million to $35 billion in assets under management.
Other major findings from the BDO USA, LLP PErspective Private Equity Study include:
- Government Regulations Burden Private Equity: In regards to the new requirements to register with the SEC, when asked which statement they most strongly agreed with, 38 percent of private equity fund managers said they believe the new requirements will require cost and time the industry cannot currently afford, and another 29 percent believe the regulations will constrain the ability of certain private equity funds to do business. At the same time, 19 percent of respondents indicated that, in addition to portfolio performance, regulatory changes are their primary concern during the next 12 months.
- Bankruptcy Filings Halt: The worst may finally be over for many companies with only 4 percent of respondents expecting to declare bankruptcy for one or more portfolio companies in the next 12 months. That’s compared to 12 percent who declared bankruptcy for at least one portfolio company in the past 12 months and 28 percent who reported declaring bankruptcy for one or more portfolio company in 2009.
- Despite Lender’s Market, Portfolios Avoid Default: Nearly half (45 percent) of respondents indicated that less than 20 percent of their portfolio has triggered loan covenant violations during the past 12 months, while another 36 percent indicated none of their portfolio has. Of respondents whose portfolio has triggered a loan covenant violation, the majority (67 percent) indicated that the primary result was the loan covenant being amended, followed by 14 percent who said the loan was refinanced. Only 7 percent indicated a default on the loan was declared and none of the respondents said the loan was called.
The BDO USA, LLP PErspective Private Equity Study is a national survey conducted by PitchBook, an independent and impartial research firm dedicated to providing premium data, news and analysis to the private equity industry. More than 100 senior executives at private equity firms throughout the U.S. with $30 million to $35 billion in assets under management responded to BDO’s latest study, which was conducted from November through December 2010.
About BDO USA, LLP’s Private Equity Practice
Strategically-focused and remarkably responsive, the experienced, multi-disciplinary partners and directors of BDO’s Private Equity Practice provide value-added assurance, tax and consulting services for all aspects of a fund’s cycle, wherever private equity firms are investing.
About BDO USA, LLP
BDO is the brand name for BDO USA, LLP, a U.S. professional services firm providing assurance, tax, financial advisory and consulting services to a wide range of publicly traded and privately held companies. For 100 years, BDO has provided quality service through the active involvement of experienced and committed professionals. The firm serves clients through 40 offices and more than 400 independent alliance firm locations nationwide. As an independent Member Firm of BDO International Limited, BDO serves multinational clients through a global network of 1,082 offices in 119 countries.
BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms. For more information please visit: www.bdo.com.