Why the importance of value creation is at an all-time high

Why the importance of value creation is at an all-time high

Guest article by: Elena Lokteva, Private Equity CFO & Operating Partner, SI Capital Partner

Private equity continues to be a popular choice for investors as one of the only asset classes that can still deliver consistent double-digit returns: $1,352bn was raised by the top 300 firms during the last five years according to the PEI fundraising ranking. But this capital is chasing a limited number of deals and pushes valuation multipliers to all-time highs.

High prices paid for portfolio assets, in combination with slow or flat economies in many countries, lead to longer holding periods because GPs must work harder improving their assets and cannot rely on market beta: the continuation of the growth of multipliers and GDP.

Attractive current returns encourage new players to join the PE world: large LPs become direct investors, some family offices scale up to function like any other GPs (Bregal), long running PE firms invest using their balance sheet capital (3i). These new players are not under time pressure and can speed up or slow down their pace of investment in a way traditional GPs cannot.

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