Foreign Issues, Not Domestic Policy, Highlights PE Pros’ Concerns at Wharton

PE pros aren’t terribly bullish outside the US nowadays.

If the next problem to confront private equity doesn’t stem from a European currency collapse, asset class professionals seem confident their new big burden will come from somewhere far away from Washington.

“We could see a little more pain in the short-term” in Europe, Carlyle managing director Andrew Marino (no, no relation), said at the Wharton Private Equity & Venture Capital Conference Friday in Philadelphia.

Marino—who painted himself as bullish on North America’s near-term prospects on the event’s LBO panel—said emerging economies are facing both a dearth of resources and inefficient, wasteful manufacturing and construction practices. Gary Garrabrant, CEO and co-founder of Equity International, who spoke separately, painted a downright glum forecast of Chinese and South American property and construction markets.

More bad news came for middle market private equity executives in attendance.

“The GP-LP relationship is changing,” said Apollo Global Management managing director Sam Oh.

Specifically, he said, GPs are more often forced to reach outside the US for LP capital, thanks to a domestic mini-backlash and portfolio rebalancing by pensions stateside. And limited partners aren’t getting any easier on terms or fees.

But the thing PE executives really wanted to talk about? Well, it wasn’t anything they wanted to discuss on the record. PE executives decried the spate of bad press they’ve gotten lately by everyone from international news organizations to Jon Stewart’s Daily Show.

One executive from a top-tier PE firm admitted that colleagues—who aren’t even in the biz—empathized to him over how the asset class has been getting bashed. Another categorized Stewart’s television lampooning (heck, harpooning) of the asset class as “noise” and virtually all attendees were in agreement: They won’t be facing higher taxes any time soon on their prized carried interest.

Separately—and, more publicly—PE pros preached mantras of job creation and value creation. Speaking at the event’s afternoon keynote, GTCR principal Bruce Rauner spoke simultaneously of “a moral obligation to give back” in the community, while also reminding professionals (and the Wharton MBA students who assembled the event) to espouse the positives of private equity at every opportunity.

Prior to Rauner taking the stage, in a separate keynote address, Warburg Pincus co-president Joseph Landy compared private equity returns over a varying set of timeframes and pointed out that, for pensions, “the numbers have been fantastic.”