Private equity may be better able to adapt to today’s tumultuous environment than other asset classes, due to the long-term nature of private equity investments and the influence that private equity managers have over entry and exit decisions. That’s the view of Peter Pfister, recently named managing director of private equity at Deutsche Bank’s Asia-Pacific Private Wealth Management group.
Pfister told AsiaBusiness that private equity is one of the few asset classes that can actually thrive despite the credit illiquidity that has plagued other sectors. For one thing, PE firms do not face the same risks of investor redemptions as hedge funds. This means they do not have to unload assets in a fire sale to meet those redemption calls. This flexibility allows PE managers to stay out of the markets if conditions are unattractive, and concentrate instead on improving the operations and profitability of their existing portfolio companies.
The other silver lining in today’s financial clouds is that private equity investments made during recessionary times have often delivered the best returns, even without leverage. Pfister believes 2009 and 2010 investments will follow this pattern. He specifically cites the areas of distressed, credit-driven and mezzanine investments as offering compelling opportunities this year and next.
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