Global private equity watch 2013

Strategies to create PE firms of distinction

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As competition in the PE industry intensifies, firms are looking for new ways to leverage their brands. We see three key means of achieving this: diversifying their platform, diversifying by geography or, alternately, focusing relentlessly on their core markets.

Diversify the platform

Firms are increasingly leveraging their strong brands in PE by expanding into advisory and capital markets services and becoming multi-asset managers. The result is that large firms in particular derive less from the traditional leveraged buyout (LBO) model in terms of returns and capital-raising.

In 2003, buyout assets accounted for 46% of all private equity capital. By 2012, this had dropped to 38%, and the trend is even more pronounced at the largest firms.

PE firms are strengthening their asset management capabilities to expand their franchises. Ventures by firms such as The Carlyle Group and GSO/Blackstone garner most of the headlines, but it's not just the very largest firms that are seeking to diversify their income streams. Our analysis of firms in the Private Equity International 300 ranking (below) shows this diversification.

One key strategy for PE is therefore to act as a consolidator in the alternatives space. Although many of the skills required to manage different alternative assets vary significantly, those with strong brands and a proven ability to gather capital from institutional investors will be the firms that can attract top talent in a variety of investment fields.

Diversify by geography

PE is also leveraging its talent and active management expertise to increase its geographic reach into new markets and capture some of the world's most compelling growth stories.

Although assets under management (AUM) of the PEI 300 in both the US and Europe declined between 2010 and 2012, they have been rising in some key emerging markets over the same period. Asia-Pacific and South America have been the main beneficiaries, as well as Africa to a lesser extent.