Jordan Co., GTCR Execs Flag Fundraising Challenges

  • Jordan Co.’s Rich Caputo looks toward sovereign wealth firms
  • GTCR’s Phil Canfield sees dwindling ‘dry powder’ ahead
  • Caputo sees some private equity firms may exit the business

“The headwinds are there — you’re going to see less capital,” said Richard Caputo Jr., managing partner of The Jordan Company. He suggested private equity firms become more supportive of labor unions and public retirement funds “because we don’t exist without the pension system.”

At the same time, many pension systems are underfunded and won’t be able to increase their dollar commitment to private equity and other alternative forms of investment, he said. But sovereign wealth funds from Asia and the Middle East could help take up the slack.

Caputo pointed out his firm added an Irish pension fund to its roster of limited partners, only to see the money dry up three years later. “The world changes very quickly now,” he said.

Separately, sister website peHUB reported that Jordan is fundraising for the Resolute Fund III LP, with a target of $3 billion. Caputo declined to comment on his firm’s fundraising plans.

Caputo sees his firm maintaining its position as a generalist firm positioned to deal with the cyclical nature of businesses in the energy, financial services and industrial sectors. “The mid-market firms who build businesses and focus less on leverage and financing — those are the ones that will handle the next turn,” he said.

Even with the fears around the 2008 financial crisis, the buyout business has benefited from lower interest rates, but that will soon change, he said. “It was easy,” he said of the business during the low lending terms enjoyed by sector in recent years. Any inflationary moves in the economy will stunt GDP growth, but if buyout shops borrow money at fixed rates, they could see a slight boost from rising interest rates, he said. Still, much uncertainty remains.

Tell us what the central banks will do and we can tell you about the economy, he said.

Looking ahead, Caputo said his firm has not stepped up its effort to sell companies this year. “We have to always be selling,” he said during his keynote speech. “A good year is selling as many companies as we buy.”

Phil Canfield, managing director of GTCR, said the private equity business took off after 1980 legislation that allowed public pension funds to begin investing in privately run, alternative managed funds. But the business now faces less capital ahead after a huge surge from 2003 to 2007.

“Our industry is declining in a pretty dramatic way,” Canfield said. “Dry powder has decreased at a rate of 9 percent between 2009 and 2012.” New funds from private equity firms are an average of 30 percent smaller than pre-crisis fund sizes, he said.

Private equity firms face a relatively flat playing field in term of deal access, leverage, investment selection and injecting management expertise into portfolio companies. But private equity firms can distinguish themselves by driving transformation at companies and selling a revamped business in exit deals, he said.

GTCR’s latest fund, GTCR Fund X, closed in 2011 with an equity capital commitment of $3.25 billion.