PE pros offer grim forecast

Top executives at two of the world’s largest private equity firms gave a grim forecast last week for the U.S. and global economies, although they expected Asia to recover from the downturn more quickly.

Bain Capital
Managing Director Paul Edgerley said he expected U.S. housing prices to drop a further 15% to 20% and predicted “a very deep recession, I think the worst we’ve seen in my lifetime.”

Boston-based Bain Capital is currently investing from a roughly $10 billion buyout fund. Edgerley, who joined Bain in 1988, has been behind such investments as chemicals company Brenntag; Sensata Technologies, a carve-out from Texas Instruments Inc.; and MEI Conlux, a carve-out from Mars Inc.

“The consumer is beaten up and they have a long way to go,” Edgerley said at the Asian Venture Capital Journal private equity conference in Hong Kong last week. “It’s going to take a long time for the U.S. economy to turn around and become a growth engine.”

He added that the United States was not alone, with the United Kingdom, Spain and Ireland, “probably in a bigger mess than the U.S. is in now.”

TPG Capital’s David Bonderman said that a global recession would be deep and prolonged and that he also believed the U.S. housing market would probably fall further.

Both executives agreed that Asia, while getting hit by the financial crisis, was well suited to withstand it, thanks in part to the overseas banks’ relative lack of exposure to risky subprime mortgage securities which sparked the global crisis.

Edgerley was more optimistic about Asia, saying the region was in a better position to weather the financial storm. Bain’s Asia focus is in China, Japan and India. Edgerley’s hope for Asia was based on the growth of the consumer market and burgeoning middle class.

He was less encouraging about India’s prospects, as the country’s economy is not as driven by exports as China’s.

TPG has hit a rough patch lately, with several U.S. investments getting hit by the credit crunch. Its Asian portfolio has also been hit.

The U.S. government’s move in September to close and sell the banking assets of savings and loan institution Washington Mutual to JPMorgan Chase wiped out a $1.35 billion investment that Texas-based TPG made five months earlier.

It was the largest U.S. bank failure ever, and a blow to TPG’s wallet as well as its reputation as a savvy buyout investor. —Michael Flaherty, Reuters