At this year’s SuperReturn conference, everyone was talking about the changing landscape of private equity. In the face of geopolitical unrest and a mixed economic outlook, private equity can serve an even bigger role in both globalization and connecting global economies in order to maintain a healthy business landscape. With the backdrop of nationalism, political crisis, and social protests around the world, our industry is ready to take more responsibility for two main reasons:
- Our investment companies are tremendous vehicles for growth and value creation for the economy, and;
- We have a multiplier effect on the companies we manage. Our economic, social and environmental impact is substantial, but it’s unknown beyond our industry.
So, what can private equity firms do to be both more efficient and more impactful?
Be a Good Corporate Citizen
Private equity firms need to value their non-financial track record. Private equity is not private anymore. PE-backed activity is estimated to generate around 5 percent of GDP[i], exemplifying the strong impact of private capital on social and environmental matters across the globe. There is increased attention on these activities, signaling that investors are more carefully evaluating the standards for due diligence. Many LPs now evaluate environmental, social, and governance (ESG) standards as part of their criteria before choosing GPs and continuously focus on the impact investment companies are making on the world.
Similarly, management teams of investment companies are doing the same due diligence on their potential investors. Private equity funds need to emphasize their non-financial track record to remain attractive to potential investment companies. What we found successful was to have a dedicated CSR team in order to embed this due diligence process into our investment strategy.
Invest in Long-Term Partnerships
Offering a global and long-standing partnership allows for real transformation to occur. A truly enduring relationship offers support through the stability of a long-term investment philosophy and the support of a permanent capital.
We aim to work with leadership teams for an extended period to evaluate opportunities and make changes that are sustainable and significant. Our LPs are joining us in making this happen. From an investor base, sovereign wealth funds and high net-worth individuals are searching for long-term partners who can identify investment opportunities that align with their interests and governance policies. PE firms who are long-term investors with a global mindset have an upper hand in attracting new LPs from this base. Many firms are noticing this trend and looking to build a permanent capital base.
Operate with a Global, Multi-Disciplinary Mindset
Industry challenges such as high valuations, competitive bidding processes and growing and emerging players are causing PE firms to broaden their operations and look beyond. The goal of a global mindset is to support entrepreneurs and managers at every stage of their development, while unlocking potential value, growing the business, creating jobs and impacting the economy.
Firms should look beyond viewing themselves as solely financial partners or asset managers, but as investors in entrepreneurs. It is crucial to build a team that supports this perspective. We look for people with industry knowledge, operational expertise, leadership experience and strong networks who seek to support the development of our investment companies with an enhanced operational focus. We actively support the management of areas such as human resources, internal controls, communications and legal affairs, with a strong emphasis on digital technology.
Across the globe, markets are reacting to the volatility of trade tensions, tariffs, shifts in power, and strained relations – and everyday people are caught in the middle. As private equity firms become increasingly global, it is in our best interests to think and act as positive societal actors. We all share a responsibility to positively influence public policy in the geographies where we conduct business. By prioritizing our global impact, acting as long-term investment partners and operating globally, private equity firms can, and will, drive a healthy global economy. I am committed to supporting unity through my work and I challenge other industry leaders to do the same.
Read on LinkedIn
[i] Ernst & Young, https://www.ey.com/Publication/vwLUAssets/ey-understanding-pes-impact-on-the-economy/$File/ey-understanding-pes-impact-on-the-economy.pdf