PEHub Alastair Goldfisher Part II: Successful Investors Play Fair

Yesterday, Alastair Goldfisher, managing editor of Thomson Reuter’s PE Group, gave us an intro to private equity. Today, Goldfisher shares his observations on the characteristics of successful PE firms, emerging trends in PE investing, and more.

* Edited interview

VH: Alastair, from what you’ve seen throughout the years, what makes a successful PE firm?

AG: Most people would say that private equity firms are only successful if they provide a good return to their limited partners (LPs), who are the institutional investors that invest in a pool of money called a fund. When the companies that they back mature and they sell their stake or take the companies public, then the institutional investors gain a return on their investment.

But there’s a gray area at work here. A PE firm may have a successful portfolio company that goes public and returns 10 times the investment. But some investors may prefer to have 10 portfolio companies that achieve smaller returns of 2 times or 3 times the investment. You have to look at returns over time.

Additionally, I’d like to think that a successful private equity investor is one that treats its portfolio companies fairly and which has the foresight to invest in up-and-coming sectors, rather than following the herd and backing what’s been hot for the past year.

VH: Do you see any emerging trends in private equity investing?

AG: That size matters. I think we’ll see many more firms reducing the size of their next funds and curtailing their investment activity for a couple of years. Then, in about two years, if economic recovery has taken hold, what we’re going to see is a lot of investors — who may have lost their jobs during the current crisis or have seen their participation reduced — launch first-time funds. We saw this a few years ago when lots of first-time funds were launched. I know of a lot of out-of-work investors/fund managers, and I see a lot of smart ones not fully being used. In a year or two, they’re going to work up the gumption to launch their own fund. It may be VC-focused or buyout-related, but I’m certain we’re not that far away from it.

VH: Given the current trends, what advice would you give to private equity investors/fund managers?

AG: I don’t think they’d listen to me. But if I were to impart any advice it’d be to calm down. I see a lot of unease and “jitteryness” among investors. But I believe strongly in cycles and that conditions will improve. I can’t say when or how quickly, but we’ve all seen corrections and missteps before. The industry will recover, so chill out.

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