Loss of flair?

For some of the big-brand private equity firms, the suggestion that they may be evolving into the alternative assets equivalent of the bulge-bracket investment banks is not a welcome one.

A quick glance at the latest results of the current fundraising round confirms the ongoing commoditisation of the private-equity asset class, however.

In the current climate, where fundraising records seem to stand for only a space of weeks, investors are falling over themselves to write big cheques to big-brand firms returning to market in some cases for their fifth or sixth funds.

Much of the support is driven by the track record and successful performance of the often smaller funds that precede the latest vehicles. But that is not the extent of the story. Institutional investors cannot get enough of private equity, driven by the need for higher returns and diversification of their portfolios.

This dynamic has made life even easier for the firms at the top of the private equity food chain. Witness how quickly European and global fundraising records are being eclipsed. Blackstone is on course to trump Goldman Sachs, which trumped Carlyle to the accolade of the world’s largest private equity fund.

The goal of the US$10bn buyout has been replaced by the US$20bn target, while the US$10bn fundraising threshold has risen to US$15bn. All in the space of a couple of months.

BC Partners holds the record for Europe, but that too may soon be overtaken by a new vehicle from CVC. To set things in perspective, BC Partners could single-handedly write a cheque to buy Kingfisher, the number 45 company on the UK’s FTSE 100.

While all this interest in the asset class is undoubtedly good for the firms involved in the immediate term, the implications are less compelling in one respect over the longer-term.

Mopping up liquidity from a bountiful market is hardly symptomatic of the entrepreneurial flair that made these firms so appealing in the first place. Is there a danger that commoditisation will cloud innovation for Blackstone, Goldman, BC Partners and the rest?

Commoditisation of the asset class has positive implications on the other hand. The process has largely undermined the days of “me-too” commitments to funds by investors just because the big name LPs have already signed up.

This change has resulted in greater emphasis on proprietary research, undoubtedly a plus point in these days of spiralling prices and the supersizing of private equity commitments.