In the wake of the Sept.11 terrorist attacks on the U.S., the private equity community is attempting to get back to work in search of something that resembles normalcy. However, GPs are quick to say that they have headed into the office with heavy hearts and fearful outlooks, and they have begun to realize that normal is changed forever.
While deal flow has been relatively slow this year prior to the attacks, due to several factors including tight debt markets and high seller expectations, the growing threat of recession and the general mood of the population are just a few more of GPs’ concerns for the coming months. Of course, the all-to-real prospect of war factors in as well, making a positive outlook near impossible.
“If we thought it was bad before, we didn’t know what bad was,” said one GP. “I fear that, while everyday tasks will remain normal for the most part, uncertainty in the economy and with the country’s future will have an effect on business – mergers and acquisitions, buyouts – for an undetermined amount of time.”
The fear of getting on airplanes and the hit to consumer confidence will likely affect portfolio company performance as well, sources say.
Limited partners, on the other hand, have reacted somewhat differently to the attacks. The $170 billion California Public Employees Retirement System issued a statement last week expressing its confidence in the U.S. financial system and markets. Other pension funds, including Washington State and the State of Wisconsin, echoed CalPERS’ statement of confidence, adding that the events would not have an effect on their involvement with alternative assets.
Prior to the attacks, Buyouts had reported an onslaught of investor interest coming from the Middle East. Indeed, several U.S.-based firms have been set up on behalf of Middle Eastern families and institutions. Now, those firms are understandably concerned. “Because of our affiliation with the Arabian Gulf region, one of our greatest concerns after the events is the risk of generalized hostility toward Middle Eastern interests as the result of the acts of a lunatic fringe,” said Charles Ogburn, executive director of Crescent Capital Investments, which assists investors in making Islamically acceptable investments in the U.S.
Ogburn said its Islamic partners are shocked and disgusted that the crimes are being associated with an “Islamic” cause. In a letter from Crescent’s parent company based in Bahrain, Chief Executive Atif Abdulmalik wrote that his firm was shocked by the events of Sept.11.
“As my wife and I were taking the children to school, we couldn’t help thinking about the suffering of the families of those affected by this tragedy,” he said. “Our hearts go out to everyone in the U.S.”
Really, there’s no question the buyouts market faces numerous challenges in the aftermath of Sept. 11. As one GP put it, it’s going to take some effort to stay positive.
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