Easton scans the private equity horizon

A report on Robert Easton's recent Distinguished Guest Lecture at the Business School.

One of the largest private equity firms outlined what it perceives as the main threat facing, and future of, the industry at a talk at the Business School last week. Dr Robert Easton, Managing Director and Co-head of Carlyle Europe Technology Partners, gave the last Distinguished Lecture of the summer term on Thursday 25 July.

Dr Easton joined a growing chorus of concerned experts on a directive being prepared in the European parliament. The proposed Alternative Investment Fund Managers (AIFM) directive is causing disquiet in the UK's financial sector. "It is, without doubt, the biggest threat facing the industry," Dr Easton believes. 

The directive's current format, has been called rushed and ill conceived by some in the UK. There is also agreement that the policy requires careful re-drafting to close some gaps in its provision. One European head of state reportedly said the policy has, "more holes than Swiss cheese."

Dr Easton's main concern is how the directive threatens to intervene in relationships and arrangements where there is no dissatisfaction among parties. For example, the directive currently threatens to prescribe acceptable valuation methods, even though investors and fund managers have pre-existing, agreeable arrangements.

Dr Easton is hopeful that constructive discussion will lead to a more considered policy. "We understand why some policy makers may be feeling critical toward private equity. That's why [private equity] will be working hard with Brussels on the understanding that there are alternatives" to the legislation's current construction.

Dr Easton also commented that private equity does need to change. In addition to greater scrutiny from government, he expects to see smaller funds and investments, with deals relying on a higher percentage of equity, as debt remains scarce. For his competition he sees serious challenges:

"If you've not got a long track record of proven returns," he said, "It's going to be very tough to raise new funds." Adding that, just as after the last private equity bubble, he expects to see some of the funds go out of business in the near future due to the current tough trading environment.

Dr Easton's survey of the industry is based on being a principal on 48 deals in the last 9 years, with a total value of €15 billion, as well as chair of the Global Buyout Committee of the British Venture Capital Association. The sun had been shining on private equity between 2003 and 2007. In that period 75 funds worth over $5 billion were raised and the volume of deals was up 140% compared to a four-year period beginning in 1996.

The next Distinguished Lecture will be in the new academic year.

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