The money for private equity firms comes from institutional investors such as pension funds, sovereign wealth funds, insurance companies, family offices, high-net-worth individuals, and endowments. The investments are basically characterized by a buy-to-sell orientation where investors expect their money back with high returns within a few years of committing their funds.
When we study history, US private equity firms enjoy a far larger market size than PE firms in other regions. Further, buy-outs expanded to Europe and then Asia. Reports suggest that around four-fifths of the money flows into buyout and growth in the US and Europe.
Private equity funds seek to add value by optimizing financial structures, incentivizing management, and creating operational improvements. It is an alternative system of governance for corporations. It mainly focuses on ownership and control. The ownership and control form the basis for returns as earned by the best PE funds.
Given the pandemic situation, changing economy, and demands, it is clear that Private equity investment professionals must pay closer attention to stakeholder relationships to gain expected capital flooding.
Preqin reports suggest that by 2025, alternative assets might swell by 61 percent to about USD 17.2 trillion at the global level. Private equity firms looking forward to gaining more capital must strengthen stakeholder relationships with limited partners, portfolio companies, and talent, Deloitte reports. It is found that the PE firms that showed/expect a decline in revenues has concerns regarding owners for financial control domain during the pandemic.
So, there is an urgent need for looking for ways to distinguish themselves for gaining capital and attracting the best talent as well to keep the needle moving faster.
The silver lining is that the bond yields might stay low, public equity returns may remain below the historical annualized returns over the next 10 years. As a result, institutional investors like pension funds, endowments, investment companies, family offices, insurance companies, and more are increasing their allocation for private capital, Deloitte reports.
Further, David Lowery, head of research insights at Preqin says that private equity markets, the core part of the investment landscape have witnessed an incredible rate of growth in size and influence. They expect that the growth will continue lifted by vigorous private equity activities and booming participation of Asia-Pacific.
On the other side, let’s take up the talent force. Given the pandemic situation, it is crucial to building diverse teams as they have to show up at the table to buy businesses. Portfolio companies will get value provided there is a strong team in the firm. Tighter talent practices such as layoffs, furloughing, and compensation cuts turned out to be the biggest challenge for portfolio companies.
If you are looking to get into a private equity firm, then this is the right time to hone your skills. As PE firms tighten the recruitment and expectation, take a leap into the industry by preparing for it. Be competent in the domain by upgrading yourself, learning new skills and knowledge. The best-recommended way to upskill yourself is to earn a certification in private equity.
One of the best-recommended certifications is chartered private equity professional – CPEP certification here. The programs help you to understand the history of private equity, know the structure of private equity, measure the returns, different types of private equity, learn the nuances of leveraged buyouts, understand the investor side of private equity, limited and general partners, and more.
As the PE firms gear up to build diverse teams and the industry is going to grow, acquire more knowledge, understand the trend to ace your career in private equity. Choose the right certification to move ahead in your career.