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News & Events

Private Equity conference assesses new ‘golden era' for sector

Annual Kellogg School event convenes equity experts for daylong summit

By Deborah Leigh Wood

3/1/2005 - Private equity is enjoying a golden era due to record low-interest rates and a high-yield market in the last five years, said experts at the Sixth Annual Kellogg Private Equity Conference, held March 9 at the James L. Allen Center.

As a result, the U.S. economy has benefited considerably, due to the abundance of available capital and wealth of mergers and acquisitions, said conference keynote speaker Robert E. Grady, managing partner of Carlyle Venture Partners.

Since 1997, he said, “the number of people in the business of private equity has doubled, making the industry a significant source of U.S. employment.” Those in private equity work at companies that specialize in one or more phases of investment: seed, early stage, late stage and restarts.

Private equity firms today have the liberty of picking and choosing the best deals, said Paul J. Finnegan, co-president and managing director of Chicago-based Madison Dearborn Partners, and the conference's second keynote speaker. Some of these firms now negotiate formerly risky deals such as secondary buyouts and “megaclub” deals involving a group of private equity firms.

Conference experts said hedge funds also are taking advantage of this boom by rapidly making inroads in the private equity market. Not everyone is happy about this trend.

“They're here to stay, but their returns are mediocre,” Finnegan said. Some at the conference contended that hedge funds shouldn't be in the private equity market because of their unreliability. But Mike Yoshino '05, lead co-chair of the conference, said the growth of hedge funds no doubt will lead to a convergence with private equity, thus creating “one giant asset class.”

With this “institutionalizing” of an asset class comes the need for greater transparency and accountability, Grady said.

“Private equity may be regulated at some point to develop a more standard form of accounting. But firms need to recognize the reality and police ourselves by reporting fund returns so we can withstand inspection,” he said. The cumulative effects of regulation to protect the small investor, however, will lead to “less research, trading, liquidity, information, innovation and fewer NASDAQ listings,” he noted.

Nevertheless, there's a hunger for yield, experts said, which has led many private equity firms to carve out a niche in areas such as healthcare, communications and consumer products, among others.

To determine which firms have the best chance of success, many investors are looking for those with a proven track record of reliability and transparency when it comes to intellectual property, said James Conley, clinical professor of technology at the Kellogg School and moderator of one of eight panel discussions featured at the conference.

Conley's panel, titled “The Three Dimensions of Successful Technology Commercialization: Technology, Business and Intellectual Property,” set out to explore fundamental dynamics at the intersection of technology and commerce.

Although the technology field hasn't fully bounced back from its bust in the 1990's, said Conley, “it's still an industry with good return on investment.”

The healthcare industry, meanwhile, is attracting investors who see its spectacular growth as “an aphrodisiac,” said healthcare panel member David Loucks '93, managing partner of the Aethena Group. "More people attract good ideas," which attracts more capital, said the Kellogg School alum.

But the ultimate reason to invest in healthcare, said panel member Shad Weaver, vice president of Nashville, Tenn.-based Claritas Capital, is that the healthcare industry seeks to meet important needs.

“We all want to live longer, healthier lives,” said Weaver.