Emerging From the Mess
Actually, at the time, even though it becomes harder to remember as time passes, it really did look that bad. It is a testament to architects of our recovery who have been trying to keep this economy together that we actually have a semblance of normalcy. Not that everything regarding our economic recovery has been successful (namely jobs) and all of the above did happen with adverse impacts on private equity. What is surprising was how private equity was able to ride this downturn out. Sure, there were some layoffs (an industry first), portfolios were written down, portfolio companies were pushed to the edge of bankruptcy and fund raising was stalled.
When deal flow dried up, the focus turned to portfolio operations to add value, creative re-financing options were found as banks were not eager to acquire distressed assets with some firms becoming their own debt investors and Limited Partners were given some commitment reprieves while their own investments started to climb back. All of this was aided by the recession easing and the significant amount of unallocated capital raised by private equity before the crash which provided that buffer during the downturn by keeping the lights on with the use of management fees. Granted, the pain was distributed more heavily with the smaller funds due to fee structure, but on the whole, this sector group has held together. Even more surprisingly, it is set for a significant rebound if you believe the leadership of these firms who are looking at discounted assets in the market. To steal a Mark Twain quote, maybe private equity could have stated “the reports of my death are greatly exaggerated” to some of those yearend 2008 prognosticators, but I could hardly be one to judge their assessments at the time.
