Trends Watch: April 6, 2017

EisnerAmper’s Trends Watch is a weekly entry to our Alternative Investments Intelligence blog, featuring the views and insights of executives from alternative investment firms. If you’re interested in being featured, please contact Elana Margulies-Snyderman. 

This week, Elana talks to Kunal Kain, Managing Partner, Kain Capital.

What is your outlook for private equity?

We have seen a radical shift in investor sentiment on the ability of hedge funds to deliver alpha, which has significantly impacted the private equity space. A majority of the larger funds are now sitting on growing pools of dry powder and with valuations ballooning and yields shrinking in the public markets, institutional investors are looking to reallocate their alternative investment portfolios. One area we view as being protected from the volatility and these trends is the lower middle market buyout space given the longer-term holds and potential to drive value through active management and business optimization. Companies in this space typically offer additional opportunities for value creation through the professionalization of management and increased financial discipline, and we believe this will ultimately drive sustainable high returns for investors in the long run.

What is your outlook for the economy?

The economy is currently in a precarious stage as we still do not have a clear picture of what the current administration's plans are going forward in a number of different areas. Uncertainty around major themes such as corporate taxes, tariffs, interest rates, international trade and immigration will continue to contribute to volatility and the overall growth rate of the economy. Many industries are also significantly more exposed due to proposed changes in infrastructure, health care and environmental regulation. For investment firms, risk management during this time horizon will be an invaluable differentiator.

What keeps you up at night?

Currently, the biggest challenge for us has been capital allocation. In a deal environment that is characterized by lofty valuations and scarcity of high quality assets, and coupled with the potential changes being proposed by the administration, we need to uncover areas of opportunity where value creation will be sustainable while minimizing the exposure to variability and risk.