Private equity is no longer an “alternative” class

“Private equity is not macro, it is micro”. Interview with Marco de Benedetti from the Carlyle Group.

Recently, the Carlyle Group reorganized its private equity operations in Europe with the creation of a European Private Equity Executive Committee to encourage its two main strategies – Carlyle Europe Partners (CEP) and Carlyle Europe Technology Partners (CETP) – to expand their to share resources and ideas. The two investment teams, which manage more than 17.3 billion euros, are now led jointly by Marco de Benedetti and Michael Wand. As a leading private equity firm, the group should become more prominent in Europe. Interview with Marco de Benedetti on the sidelines of the Global Investment Forum organized by Adam Said.

Why did you combine your two main strategies?

They have remained independent for more than 20 years due to their different sizes but also due to the nature of the activities covered. Technically, the main fund (CEP) that I was responsible for was only interested in telecoms. However, this main fund was looking for greater exposure to the technology sector and CETP had all the experience required. In addition, the Technology Activity (CETP) has grown significantly in recent years and the relative size of the two funds allows them to be combined today. It’s an opportunity to bring the two teams together and create something more competitive through greater collaboration. CEP will leverage CETP’s technological know-how to enhance its capabilities in this space, while CETP will benefit from CEP’s deep understanding of many verticals and end markets. This ensures that nothing slips through the cracks. This increased cooperation is by no means aimed at optimizing costs, but at expanding and improving coverage both geographically and professionally, with the investment strategies naturally remaining independent.

In our business, only a third of the meetings can take place “remotely”. A decision is first a matter of judgment… and judgment requires real contact.

How has private equity developed in recent years?

There was a time when an investor’s only expectation was to receive regular cash flows. It was getting harder and harder. Today, the investor needs to understand how the company they invest in works and master the skills to improve their operations. This does not mean that the investor replaces management, but that they need to know how to support the local team and provide solutions when needed. 10 years ago, 100% of a private equity team was doing deals. Today at least half of a team supports companies in at least one specific initiative.

How do you assess the current events and the impact on your investments?

Private equity is not macro, but micro. A good macro environment is not necessarily a good environment for investing. In our business, everything depends on the quality of each asset. We think in the medium term and play secular trends over at least five years. I will name three main ones: health, digitization and energy transition. The future of the First lies in accelerating aging and a growing reluctance to accept suffering. More personal services, more pharmaceuticals, the development of these activities is decoupled from the macroeconomic situation. Second, I want to be clear that we don’t invest in technology companies, but in those that can benefit from their leverage. Also with regard to the energy transition, we (CEP) will never invest in solar panels or lithium batteries, but rather in niche products such as Flender’s wind turbines or switches for lithium batteries from Schaltbau. In addition, I would like to add that the macro context has an influence on the valuation of companies and is therefore not indifferent.

A few prospects in Switzerland?

Last year we invested in the medtech group Acrotec. Other important files are currently being examined.

How are inflows into private equity growing?

Allocations to the asset class are booming. Private equity is no longer perceived as an “alternative” class, but as a core investment. The obvious explanation for the appetite for this class is its yields. This trend will continue for structural reasons: The penetration of the class in portfolios is still low compared to the expected returns.

What has the lockdown period taught you?

Face to face is essential. In our business, only a third of the meetings can take place “remotely”. A decision is first a matter of judgment… and judgment requires real contact.

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