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Private equity sponsors face big changes

By under-investing the vast funds raised at big expense to their end clients and then delivering shrinking returns, private equity sponsors are prompting customers to demand new approaches.

Euromoney sits down with a private equity fund manager, a veteran of the investment banking industry, who has concentrated the firepower of the hundreds of millions of dollars former contacts have entrusted to him through their family offices in the fintech sector.

His views are reassuringly and profoundly cynical.

He sees so many supposed businesses that are just an app unburdened by any of the drudgery of dealing with actual customers that he no longer pays attention to them. There are a handful of more mature businesses that no longer fit comfortably in the regulated banking industry that he is prepared to provide late stage funding to, but he is looking for rare ones that can actually deliver profits and dividends.

That’s because the exit route is not clear. Private equity investors used to take a five-year view on buying, owning and selling companies. He suggests that creating value in such a short time frame is like buying a lottery ticket and expecting to win the jackpot: enormous odds against and pure luck if you do.

He says private equity now has to take a 10-year view. Successful flotations are rare. Trade buyers are the preferred take out but in banking, for example, are only now hoping that the high-water mark of re-regulation has passed.

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