The better the question. The better the answer. The better the world works. У вас есть вопрос? У нас есть ответ. Решая сложные задачи бизнеса, мы улучшаем мир. У вас є запитання? У нас є відповідь. Вирішуючи складні завдання бізнесу, ми змінюємо світ на краще. Meilleure la question, meilleure la réponse. Pour un monde meilleur. 問題越好。答案越好。商業世界越美好。 问题越好。答案越好。商业世界越美好。

Themes from Q3 2017 PE earnings calls

PE firms are waiting for details of US tax reform to gauge opportunities. Read the top five trends below.

Waiting to see what makes the cut in US tax reform

  • The industry is waiting with particular interest to see what changes US tax reform has in store for items like interest deductibility, carried interest and corporate tax rates.
  • Most corporate tax professionals anticipate that US business tax reform will pass in 2018, according to survey of corporate tax professionals during a November 2017 webcast hosted by EY.

Focusing on succession planning

  • Succession is a hot topic in the private equity world as another bellwether announced changes to address its future leadership at the top. Generally, many of the entrepreneurs that formed these founder-led businesses are in their 70s today and are now looking to the next generation to lead.
  • Carlyle Group LP named Glenn Youngkin and Kewsong Lee as co-CEOs effective January 2018. In July 2017, Kohlberg Kravis & Roberts & Co. LP (KKR) named Joseph Bae and Scott Nuttall to the newly formed role of co-presidents and co-COOs. They will be jointly responsible for the execution and implementation of KKR's strategy, as well as join the executive leadership team. Co-chairmen and co-CEOs Henry Kravis and George Roberts will continue to lead the firm they founded. The moves set up succession planning at both firms.

Return expectations are what really matters to investors. As LPs evaluate whether or not to invest in the next fund, knowing who the future leaders of the firm will be helps them determine whether the ethos and culture of the firm that produced the historical returns will survive and produce similar returns under new leadership.  

David MacKinnon,
Ernst & Young LLP Transaction Advisory Services, TS-Transaction Diligence Partner.

Embracing big data and technology, but still in early stages

  • The PE industry is closely studying the impact and opportunity of using big data and technology. The review remains in the early stages at many firms, but the potential benefit is evident. Firms are trying to figure out how to best incorporate the use of data and technology to identify targets, improve decision-making processes and predict business trends, among other potential applications.

New approaches around big data and analytics can help accelerate that process, leveraging data to test their initial investment thesis. Companies have not been as proactive as they could have been in the last two years and are now leveraging technology to take a surgical, strategic and expedited approach to synergy capture.  

Mitch Berlin,
EY Americas Operational Transaction Services Leader.

Recognizing Asia-Pacific’s potential is leading to more PE attention

  • Asia-Pacific’s overall mergers and acquisition (M&A) market outlook remains strong and resilient to uncertainty and volatility. The overall outlook for China’s outbound M&A remains robust, and the pipeline continues to strengthen as clarity emerges regarding regulations. In addition, there are large potential corporate carve-out opportunities in Japan that may interest PE.
  • Asia-Pacific ended November 2017 with about US$61b in buyout dry powder, according to Preqin. The tally is up from US$34b at the start of 2010. The increase reflects LP attraction to the region due to potential return on investments.

Pursuing retail investors

  • 401(k) plan owners may find access to PE more appealing because of the potential for better returns. Historically, PE has outperformed other asset classes over the long term. PE has outdone the public markets by roughly 330 basis points over a 10 year period, according to the American Investment Council (AIC).
  • Several PE firms continue to invest both time and money to develop new structures that will enable them to access the untapped capital held by 401(k) and other retirement savings plans. Firms are also taking a closer look at technology and at how they manage the distribution channels to gain an advantage in their bid to reach retail investors.