As we look ahead to the remainder of 2011, a number of geopolitical events, primarily the recent uprisings in a number of countries in the Middle East and North Africa, are still playing out.
We noted in a recent article featured in the US PE trade publication Buyouts that the most serious risk to PE investing, and the economy in general, would be another macro-shock — though at the time we gave it a low probability of occurring. A rise in oil prices, which would result from any major disruption in production, could very well send the world economy reeling again.
Sovereign financial risks seem likely to remain high, particularly in Europe, and currency volatility or trade wars could damage the prospects of many companies that rely on export sales or access to imported commodities.
In the end, despite what seems to be an improvement in circumstances for PEs — an increase in leveraged lending, transaction and exit activity and coffers filled with committed capital to spend — many firms should ask themselves these critical questions:
- Is our investment strategy clear and concise, yet diverse enough to withstand another downturn?
- Are we effectively and consistently working the portfolio?
- Is our back office positioned to proactively and efficiently manage key stakeholders?