I just returned from a trip to Japan talking to a dozen private equity firms about market and economic outlook.
Bain’s recently published report on the next decade’s massive capital abundance talks about a baseline of low return expectations. One way many firms countered this in the past was increased allocations to emerging markets.
Somehow the global economic outlook is troubling. Europe is in perpetual bailout mode, Japan is still in negative growth, the US has that nice fiscal cliffhanger. On the emerging side, India is in a political and regulatory chaos, China just closed its IPO markets. Brazil seems to have an upswing in activity as some western firms like KKR expand operations.
Hopefully all this global gloom will mean increasing value creation focus in the firms to regain ground on the IRR.
After all the capital is there in abundance and needs to be put to work. And public equities, bonds and commodities don’t seem to save the day for LPs. This may just be the beginning of the golden age of operational value creation.