Forget private equity – go into debt, Manns tells future managers

EUROPE – Aspiring private equity managers should rethink their plans and instead move into debt funds, according to Europa Capital principal Noel Manns.

He told an industry conference this week: "People are drawn into a sector when there is a boom, but the boom has ended. At an alumni event recently, every one of a group of graduates told me they wanted to go into private equity. I told them to go into debt funds instead."

Although he acknowledged a future for private equity among "pension funds with £20m (€25m) that need to be in funds", Manns forecast "major consolidation".

Fellow panellists suggested small and mid-sized managers struggling to close credible deals could decline by 30%.

"The number of participants will shrink," said Manns. "It can't go on as it is. If a manager is slightly wounded by the performance of the fund, if fees go down, and if that manager has one of two funds, another fund will need to be raised to pay the troops.

"That will mean moving out of this industry into another. It's sad but logical."

His comments came a week after Sandra Robertson, CIO of the £1.5bn Oxford University Endowment, claimed private equity managers had abandoned alignment in favour of opaque fees on poorly returning funds.

The panel acknowledged private equity was facing a public relations crisis. 

Russell Jewel, head of European private equity funds at AEW Europe, said: "We used to be opportunistic investors – now we're private equity real estate managers.

"No wonder people don't understand what we do. We need to stop making up names for ourselves."

Asked to comment on Blackstone's recent announcement that it had raised $13.3bn (€10.3bn) for its latest commingled fund, panellists pointed to difficulties facing small managers without significant back-up.

"If you have a platform, then you have the luxury of being able to launch niche funds that aren't megafunds because it's about the platform and the manager, rather than the size of the fund," said Jewell.

But Rodney Bysh, chief executive at Feldberg Capital, pointed out that large houses were not interested in niches unlikely to deliver significant returns.