Panels 

Emerging Markets experienced an unique development until summer 2007, at least partly driven by private equity investments and a massively increased amount of capital committed to private equity funds focussing on developing economies. However, not only China and India as the largest developing economies moved massively into the focus of private equity investors, but also regions such as Africa, Latin America, or the Middle East beyond the Emirates themselves were considered to offer outstanding opportunities for investors.

While private equity investments were growing tremendously around the world, the way these investments work is fundamentally different between the "Western World" and Emerging Markets. The latter are far less driven by and dependent on the involvement of financial leverage, the the need to cut costs or competition in globalized markets. Instead, private equity investments in Emergin Markets focus much more on growing the businesses, establishing and extending regional presence and carefully balancing between minority and majority ownership and control.

As one outcome, investments held by private equity firms in emerging economies were less hit by the financial crisis and faced less financial distress than most investments in the "old world".

For a number of reasons, the secondary market for Limited Partners' interests in private equity funds has remained relatively inmature in the past. At the same time, a working and efficient secondary market for is one of the most interesting topics for institutional investors worldwide. On the one hand, a more liquid secondary market gives Limited Partners the opportunity to rebalance their existing investments and future commitments into private equity from a whole portfolio perspective, thus, would result in more efficient portfolios of at any point in time. On the other hand, a liquid secondary market has the power to drive further liquidity into the primary market of private equity. Limited standardization of Limited Partnership Agreements, a General Partner's approval of any sale of an LP interest, as well as safe havens and qualified matching services are just a few pieces of the overall puzzle.

In 2008 and 2009 the secondary market has experienced momentum due to overcommitted and partly illiquid investors, as well as a buyers market from the perspective of secondary funds combined with questionable performance of many established General Partners. Implicitly, secondary private equity funds experienced oversubscription in a market where fundraising was hardly feasible. U.S. insitutional investors -the endowments of Harvard and Stanford University among others- were keen to be relieved from their private equity portfolios.

The Real Estate market has been one of the most severe hit during the term of the financial crisis. Not only the valuations of residential properties fell massively, but also commercial real estate faced a sharp decline in value in the past. Until summer 2007 real estate has seen a number of very large investments from private equity. Equity Office Properties Trust was the second largest private equity deal in history. Other prominent transactions involved names like Hilton Hotels, La Quinta or Wyndham International. Not to mention numerous real estate investments in Dubai and other emerging economies.

Furthermore we are interested in the current state and future expections of private equity investing in real estate. Have there been outstanding opportunities to invest in throughout 2009, are current valuations appropriate, and what to expect in the short and mid-term future of the real estate market in Europe, the U.S. as well as developing economies?

In private equity transactions the financial sponsor has three levers to increase the value of his equity investment. He can leverage his investment to amplify the benefits of all future upsides, commonly referred to as financial engineering. He can aim to improve a company’s position and its valuation multiple through restructuring the firm, i.e. making add-on acquisitions and focusing on strengthening core competencies. Third, he can make grow a company’s earnings by expanding revenues and operational improvements. From the advent of private equity until recent years there were periods where one of these three levers turned out to be part of the main investment strategy, while at least one further lever was necessary to realize IRRs of 25 percent or more.

In today’s environment it is questionable to what extent return targets of 25 percent are anymore realistic. Although, debt markets are currently recovering we are unlikely to see similarly high levels of leverage being available as in the later 1980s and the mid-2000s. During the recent recession, many companies have been extremely focused on cutting costs as much as possible, either to simply survive or to catch dropping share prices by paying ongoing dividends. Outsourcing labor intense activities to Eastern Europe or Asia hasn’t been a “luxury” of large corporations anymore but became mainstream in the middle market. Similarly, today’s managers are well aware of the need to focus on core competencies in globalized markets.

Over the last 25 years, private equity firms have always been at the forefront of adding value through innovative techniques and strategies, most of which were adopted subsequently by non-PE backed firms. This session intends to address the issue to what extent there is still room to create outstanding returns by financial engineering, restructuring and operational improvements. What can be the “next trend” in exploiting value that hasn’t been realized yet by existing management? Are there options for a further improved governance available? What has been the investment theses of recently conducted buyouts and how do private equity professionals assess the risk of fundamentally still troubling Western markets? Might upcoming inflation become an interesting driver of nominal returns and how to deal with currency risks of the US-dollar and the Euro these days?