Thoughts from the DJ Private Equity Analyst Conference

October 27, 2010

By Malay Bansal

I recently attended the Dow Jones Private Equity Analyst Conference, which was the 17th annual event hosted by top editors from Dow Jones & the Wall Street Journal. It was a well organized event with a lot of people in attendance and provided an opportunity to listen to and exchange ideas with significant participants in the industry. Below are some thoughts and ideas that I heard more than once, or which stuck with me for some reason.

Opportunities in Emerging Markets

It was one of the themes that I heard most often in different conversations – both on-stage and off-stage. Facts are known – emerging markets are now equal in size to the US, bigger than Europe and growing faster. Consumers there have very little debt, as opposed to US, where 70% of GDP is consumer spending, and the consumer is over-leveraged. This presents all sorts of opportunities to financial and non-financial firms. Not surprisingly, China, India, and Brazil were mentioned as the places with the most opportunities. However, there was one cautionary note that was heard often too – an investment in an emerging country requires local presence and cannot be done remotely from US. A local partner may be helpful, with or without a local office there.

Opportunities in US

Many of the opportunities mentioned in US were in Energy & Infrastructure areas. And one hurdle or negative most often mentioned was the upcoming changes to accounting and regulatory policies, including changes to treatment of carried interest.

Energy was a major topic of conversation – both the current forms, and the newer clean-energy technologies and companies. Participants saw opportunities in many areas. One interesting viewpoint favored investment in natural gas assets, with the thought process that natural gas assets may be purchased at cheap prices based on lower natural gas prices, providing a bigger return when prices rise.

Infrastructure was another major area talked about with opportunities in US. PPP (Public-Private Partnership) volume has been low in US, which is lagging far behind Europe & Canada in this space. Issues in the Chicago Parking Meter program, Midway Airport, and others have slowed other similar efforts. However, need for infrastructure spending in US is huge, and deals are happening. 80% of these are estimated to be private-to-private deals and provide opportunities. Public-private opportunities will also develop with time. One view was that the second wave of Public-Private initiatives will come from cities and municipalities rather than states, which may mean that approval the process will be quicker.

In my opinion, with its ability to create jobs locally, we can expect to see more focus from politicians on the infrastructure sector. Also, with lower yield in other investments, private equity firms and other investors will find investments in infrastructure, which usually provide a built-in hedge for inflation, attractive. In some ways infrastructure investments are similar to investments in commercial real estate properties, and some of the money targeted towards distressed commercial real estate may be able to find a way to achieve desired returns by changing the focus to infrastructure investments, especially if the government provides appropriate incentives.

 

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