Staying Competitive in an Evolving Private Equity Environment

4.6.2017

Staying Competitive in an Evolving Private Equity Environment
Takeaways from the Women’s Private Equity Summit
By Radhika Cobb, Vice President, and Natalie Fitch, Vice President

For women in private equity, the second week of March marks the annual gathering of industry leaders in Half Moon Bay, California for two days of content-rich presentations coupled with ample networking opportunities. The 2017 Women’s Private Equity Summit was a notable one, as it marked the event’s tenth anniversary and boasted record attendance of more than 500 women.

Hamilton Lane had the privilege of moderating a panel of industry-leading GPs that was focused on the topic of branding and explored the factors that affect a firm’s reputation and corporate brand today. Transparency has become a buzz word in the private equity and venture capital industry, and firms have to think harder about not only what and how they are communicating, but about ”softer” aspects as well, including the look and feel of their website and other digital platforms. Today, consumers demand more video content, social media platforms continue to expand, and the attention span of audiences seems to be getting shorter. As a result, brand-building for GPs has become more complex, competitive and multi-faceted.

Gender diversity was a central theme explored throughout the conference. Many firms noted that it has been difficult to move the needle in this regard, but acknowledged that it is important to spend time and resources in order to enhance diversity of thought and optimize decision-making. Several firms and organizations that participated have made important strides toward achieving greater diversity, but while the industry is undoubtedly better positioned than it was a decade ago, there is still plenty to be done on this front.

On the topic of investing, panelists discussed their various approaches, and how changes in the market affect their operations and decision-making processes. When asked about return expectations in the current environment, most GPs felt that expectations haven't come down, and that they simply have to do more to achieve them. Panelists noted that the underwriting process is more complex than it was a decade ago. Today, countless scenarios are considered during the underwriting process with a focus on sustainable growth. GPs also agreed that it is important to invest in companies that will do well regardless of any governmental policy changes. Lastly, increasing competition was noted several times as an important trend in the industry, requiring participants to evaluate deals and opportunities even more closely. The number of new firms and new business lines created at existing firms is at an all-time high, so firms need to acknowledge the evolving needs of their clients and adapt swiftly to changing market conditions in order to stay competitive. 

Some current challenges for private equity firms and the industry in general include the “2 and 20” fee structure, which is no longer widely accepted. We learned that while certain top-performing fund managers have successfully defended this structure (in some cases with lower hurdle rates), others have had to decrease fees. In addition, the industry is increasingly in the spotlight and will continue to be scrutinized on multiple fronts, including outsized distributions of wealth. 

LPs, for their part, are showing an increasing interest in co-investments and direct deals as a potential means of enhancing returns while also lowering fees. In general, LPs expect to continue to grow their private equity allocations over the long term, given strong historical performance. 

Overall, the conference was energizing and informative, with relevant industry discussions and great audience participation. With gender diversity an increasing area of importance and focus at private equity firms - and throughout a multitude of other industries - events like the Women’s Private Equity Summit offer a fantastic opportunity for a diverse group of female GPs, LPs and advisors to share ideas and build relationships.

 

 


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