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Is U.S. Increasingly Attractive for Private Equity Investment?

teamAs private equity seeks to manage risk while hunting for new investment opportunities, a new report indicates that the U.S. might stand out as an important haven. But if so, it won’t be without significant competition for the best deals.

Bain Insights writes in Forbes that “in striking contrast to trends elsewhere, macroeconomic signals are flashing green across North America. After years of sluggish recovery since the 2008 recession, U.S. job growth rebounded strongly in 2014. Consumer confidence and capital spending are turning up. Unemployment and government budget deficits shrank and the U.S. dollar is trading near its highs against other major currencies.”

Bain cites four growth sources it labels as “durable.” These include:

  • “The rebound of the U.S. consumer, particularly middle-income households that benefited from the Fed’s low interest rate policies, which helped reinflate housing prices, the principal source of middle-class wealth.”
  • “Demographics, specifically the coming of age of the vast population of younger adults born after 1980, who are entering their prime household- and family-formation years.”
  • “Juice provided by the energy sector.”
  • “The emerging advances in robotics, nanotechnology, genomics, artificial intelligence and ubiquitous connectivity, which are just hitting the new product lines of big corporations and the radar screens of venture capitalists.”

This positive view of the U.S. role comes amid a recent Wall Street Journal headline: “PE Executives Disappointed in Returns Despite Robust Exit Environment.” That piece reported that “private equity firms have described the current exit environment as “biblical,” but that doesn’t mean the returns are heavenly. In Deloitte LLP’s Mergers and Acquisitions Trends Report 2015, 96% of the 408 U.S. private equity executives polled said the exits they made fell short of targeted returns. The survey included a total of 2,500 corporate and private equity executives.”

As for a traditional overseas growth engine, Business News Asia reports that “China’s Private Equity Market is Set For Slower Growth This Year.”

In a separate Forbes post, Bain also outlines the importance of so-called “Shadow Capital” and its increasing role in private equity. Under consideration: How shadow capital will affect the “evolving relationship between general partners (GPs) and limited partners (LPs) in the future.”

“Shadow capital’s allure lies in the myriad ways it serves the long-term interests of LPs and GPs alike. For LPs, investing outside of the conventional PE fund structure improves their prospects for boosting returns at lower costs. Investing shadow capital also gives LPs greater control over where they put their money to work. By investing actively alongside GPs, LPs are able to develop their own internal capabilities, gain experience in direct investment disciplines and acquire valuable knowledge about industries to which they may not otherwise have access. With all of these positives to recommend it, it is little surprise that LPs expect shadow capital will play an increasingly prominent role in their future investment plans.”

The Forbes posts are part of Bain’s Global Private Equity Report 2015.