The Experts
Jeremy Coller
The principal
William Cohan
The commentator
Anuj Bahal
The financial and transaction advisor
Javier Echarri
The industry voice
David Spuria
The in-house counsel
Ted Virtue
The private equity CEO
Industry Viewpoint - Fall 2009
What Next for Private Equity? - continued
THE INDUSTRY VOICE
Javier Echarri
Related article:
The private equity model has a huge amount to offer the future of the world’s economies. First, look at the industry’s relative size. Private equity is less than 2% the size of public equity by most measures, and in Europe accounts for just 0.4% of GDP. This suggests there are many more opportunities across the economy that would benefit from private equity’s style of ownership.
Second, private equity has demonstrated its resilience and ability to withstand extreme market and financial conditions, and to steward businesses in a responsible and supportive way through thick and thin. This helpful stabilizing effect in the economy should be recognized as regulators around the world pay more attention to systemic risks. The collapse of the credit bubble destroyed many parts of the financial economy. It also eviscerated the private equity market and in some cases forced managers at the larger end to reassess tactics. Given that private equity invests in real businesses, there will inevitably be some failures. But the underlying value creation strategy of private equity investment was never reliant on abundant credit or rising markets. It is about focused and committed company ownership. This remains an enduring quality.
Third, we are entering an era when political and social emphasis will be put on long-term rewards based on building sustainable value. In this area, private equity is an exemplar. Its long-term remuneration structures and alignment of interest between investors, managers, company executives and, very often, the workforce, are a vital element of its success. The future of remuneration across the corporate and financial sector is destined to follow the lead set by private equity, as social, political and regulatory pressure is exerted on short-term profiteering.
Javier Echarri is Secretary General of the European Venture Capital Association. He has previously held positions as the International Banking Director of BBVA Benelux, a Spanish bank, and as Secretary General of the Spanish Chamber of Commerce.
