The quagmire of ownership

What are the consequences of the recent growth in private equity investments? How successful have they been? How can they govern responsibly?

Historically, private equity markets have outperformed their public corporation counterparts by 500 to 700 basis points. William Cornog, Member and Head of KKR Capstone Europe, believes that while the private equity industry has grown, it is prone to an inevitable shakeout.

- You are going to see a little shakeout in the industry as it approaches maturity.

Private Equity Markets—How successful?
To emerge successful in this ‘shakeout’, Cornog believes that firms will have to deliver in times both good and bad, and carve a niche based on on their people, processes, and approach. That being said however, the durability of the private equity model is largely attributable to its governance structure and its inherent long term focus.

- I think there is very strong governance ; so, our boards are knowledgeable, well prepared, demanding,  focused on creating value in these companies.

Bjørn A. Ingler of Visma AS, which KKR acquired in 2010, agrees.

- Visma is more comfortable being a private equity company than a public corporation because while only quarterly results counted before, now it’s hourly or weekly but within a long term framework.

In terms of target markets, developed markets prove most lucrative given a higher proclivity to invest capital. The private equity market in the United States of America for example, has been bolstered by the shale gas revolution and the consequent changes in energy prices, as well as high labor productivity.

Additionally, given the conference theme’s focus on developing economies, of particular importance is the surge in private equity investments in emerging markets.  Private equity firms, provide companies with funds, knowledge, experience, and a network of relationships to support market expansion.

Governing responsibly
Johan Andresen, Chairman and Owner of Ferd, contends that private equity, like all other models, should include the full spectrum of its ethical implications and solutions. In an increasingly competitive market, Andresen believes that greater transparency facilitates a higher competitive advantage.

- In order to attract the best talent, you have to be more open, more open than is allowed by law.

Cornog agrees with this supposition evidenced in KKR being a public company; the duality of a private equity firm that has taken its partnership public echoes the vital nature of transparency.

- “You just embrace it. You want to make sure that everything you do is done with the knowledge that everyone could find out,” said Cornog when asked about transparency.