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The 3 big issues keeping private equity investors awake at night

June 2016

By Alicia Gregory, Head of Private Equity, MLC
 

When we speak to private equity fund managers, we like to get a feel for the key issues affecting their investment decisions. So what’s keeping some of the big private equity investors and entrepreneurs awake at night?

1. Market volatility

Obviously share markets are volatile. Oil prices are up one day and down the next. No one can predict what’ll happen tomorrow. But from a private equity perspective, this presents interesting opportunities, especially for managers who look for buy-out and rescue/turn-around investment opportunities.

This is because savvy private equity fund managers look to find mispriced assets and relatively inexpensive opportunities which are being sold by nervous investors. Historically, the best years for investing in private equity have been when traditional share markets are in turmoil.
 

2. Geopolitics

Politics, foreign policy and risks across regions are always important considerations when you’re a global investor, however right now, a few issues are really coming to the fore.

‘Brexit’ – the potential for the UK to leave the European Union, and ‘Trumpageddon’– the impact of Donald Trump potentially becoming the next US president, are creating a lot of uncertainty. For example, if the UK leaves the European Union, what will be the effect on the euro currency? Will there be some sort of domino effect? And then there’s Donald Trump. The candidate has a lot of controversial views and holds a lot of power. What’s this phenomenon mean and what will happen to foreign policy and the economy if he wins the election?

From the perspective of a private equity fund manager, the question is, how do we factor in and consider these unusual risks?
 

3. Technical dislocation

At a recent meeting with the CEO of Tesla and SpaceX, and one of the founders of PayPal, both men were asked what they were worried about most. And both answered the same: artificial intelligence, computers and robots taking over more and more of what humans do today. But interestingly, both had very different views.

While one was concerned with ethical and moral dilemmas, the other relished in the idea of being able to spend time doing exactly what he wanted with all his new-found spare time. In a world he imagined, robots will wash the dirty dishes left in the sink and we’ll no longer have to worry about getting caught in traffic jams with computer driven cars mapping out best routes.

Predicting exactly how and when these technological advancements will manifest themselves is difficult, but given private equity is a long-term investment, it’s very important to try and understand how these trends could impact our portfolios today.

 

Want to know more about private equity? Read more.

To see if you’re already a private equity investor via MLC’s diversified multi-asset portfolios, check out the MLC fund profile tool. If you’d like to know more about investing in private equity, contact us or speak to your financial adviser.


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