The Pulse of Private Equity - Private Equity Executives Survey - Fall 2012

The Pulse of Private Equity Private Equity Executives Survey - Fall 2012


Executive Summary: Key Survey Findings and Observations 

About the Research 

The Pulse of Private Equity 


EisnerAmper is again pleased to bring you The Pulse of Private Equity, now in its 5th edition. EisnerAmper has been tracking the views and opinions of senior private equity fund executives in the U.S. since 2009. Twice a year, we deliver an update on market trends and a rolling outlook for private equity activity that is right around the corner.

This Report focuses on the private equity executives' outlook for the second half of 2012 (2H 2012). It contains data on transaction and deal flow, competitive bidding, debt financing, fund activities and the fund executives' level of portfolio company interaction. The executives surveyed also provide insight into employment projections as well as investment interest in niche markets. This outlook is compared to earlier periods dating back to early 2009.

Unlike other surveys on private equity that review the industry from multiple perspectives including those of⎯private equity executives, service providers, consultants and other commentators, The Pulse of Private Equity is singularly focused on the views of private equity executives.

While the Executive Summary outlines the results, we invite you to read the entire Report for additional insight. Emerging or now-established trends are noted along with our observations from the research, and we reference supporting market data.

Please consider this Report when analyzing the private equity market and as a benchmark for your firm's level of activity vs. the respondents.

We hope you find this Report useful and we welcome your thoughts and ideas.

Executive Summary: Key Survey Findings and Observations 

Surveying private equity executives twice a year, EisnerAmper Intelligent Data (EisnerAmper ID) obtains their views of their firm's fund activity and their industry. Survey respondents also share their opinions on the outlook for market trends for the second half of 2012. Our key findings and observations are summarized as follows:

  • Private Equity Executives Are Not Expecting a Significant Change in Deal Flow. Despite a very slow start during 1H 2012 (deal volume has been in a steady downward trend for over a year), executives anticipate the same or increased acquisitions and exits for 2H 2012. However, when asked to comment further on the state of the industry, more respondents felt while deals sourced would increase, deals closed would remain the same. In a small show of optimism, few felt deal flow would decrease. For 2H 2012, respondents have more confidence in performance of the private equity market, in general, as opposed to their own firms.  
  • Private Equity Executives Are Working Harder to Access and Close Deals. Expectations were high that executives would see an increase in the competitive bidding process, for both acquisitions and exits. With these anemic conditions, it's not surprising that the executives responding to this survey spend the majority of their time (by a 15% margin) on business development and sourcing deals. Further, their teams are also expected to spend the bulk of their time looking for and working on acquisitions.
  • Money Matters. Fewer and fewer respondents expect the availability of debt financing to increase; however, more expect it will stay level as compared to 1H 2012. The majority of executives felt that they would be investing a quarter or less of their fund's current dry powder; however, the percent of capital remaining in most funds is steadily decreasing. Despite reports that 2Q 2012 was the best quarter for fundraising since 2011, more than half of the executives surveyed plan to have their firms spend little or no time on fundraising. Of those that are focused on fundraising, however, more plan to move into high gear than earlier this year.
  • Follow the Money. Data showing the fluctuations in fundraising activity are missing a critical piece: the concentration of dollars. Fewer funds are raising more of the dollars. Institutional investors are supporting large, established firms and "brand names" — closing the deals quickly. The competition and scarcity of money for smaller and less established funds is lengthening their fundraising cycles and limiting the development of newer groups.
  • LPs to GPs: Just Do It. LPs are concerned about fund management's ability to execute. Well behind, in second place, are the LPs' concerns about transparency. This may explain the firms' growing and active roles in their portfolio companies. For private equity executives, their current portfolio companies remain a priority, but fall slightly behind new transactions; both concerns reflect a focus on overall execution.
  • Compliance Concerns: All Talk, No Action? While there has been substantial talk about the growing time and expertise needed for compliance, few firms will be spending any time or money on adding professionals as a result of the increased responsibilities.
  • Caveat Emptor! Don't mistake more time and effort spent for more results. Private equity executives anticipate more than a 10% increase in the number of completed sales and exits in 2H 2012 (perhaps in response to continuing pressure to divest themselves of stale investments). This is particularly optimistic considering the diminished expectations of time spent on this work—and it trails considerably in relation to other firm activities. Ultimately, firms are focusing their resources where they hurt: new acquisitions and portfolio company performance.

    Overall, "right around the corner" expectations are not always accurate. Despite earlier optimism and media predictions for a surge in new acquisitions in 2012, pressure on private equity firms to invest capital from their aging funds has not been adequate to close deals. Economic uncertainty, market volatility and debtmarket conditions continue to create a yet-unbridged gap between buyers and sellers, making closing deals difficult.

    With worldwide political and financial crises fueling uncertainty, the private equity market, and all related markets and activities, will continue to be unstable for the foreseeable future. Private equity firms may want to augment their focus on the investments they have made.

About the Research  

This Report is part of an ongoing survey series designed to take the pulse of the private equity market in relation to earlier periods, coupled with an outlook for the second half of 2012.

During June and July 2012, 143 private equity leaders completed phone and webbased surveys.

Respondent Roles  

Of respondents, 53% were general partners as well as managing, executive and other directors.

Principals, partners, CFOs, CEOs and other executives accounted for another 34%. The remainder of the respondents were vice presidents and managers, among other senior positions.

Perhaps most telling about their perspectives on private equity is the role these respondents play in their firms. We asked in which function they spend the most time working.


Respondents operate primarily as private equity and venture capital entities, ranging in size from well over a billion dollars under management to less than $100 million.

Figure 1: Survey Respondents by Time Spent 


Figure 2: Survey Respondents by Type of Firm Figure 3: Survey Respondents by their Firm's Assets 


Figure 3: Survey Respondents by their Firm's Assets Under Management 



Geographically, 98% of the respondents were from firms with a primary office in the United States. Fifty-three percent were based on the East Coast.

Figure 4: Survey Respondents by Investment Project Interests 


The survey results were prepared by EisnerAmper LLP, and are presented with EisnerAmper's observations of the private equity market, plus references to other third party data. While EisnerAmper believes the information to be from reliable sources, it should not be relied upon as or considered to be investment advice.

EisnerAmper ID uses proprietary market research conducted by EisnerAmper and leading market research firms, along with analysis from Eisner- Amper's partners, principals and directors, to produce insightful articles, events and data designed to educate and stimulate discussion on the issues of most interest to business leaders today.


EisnerAmper ID Contact: Stacy Robin, Director of Marketing
EisnerAmper LLP


To understand this survey in a broader context, consider that between the time this report was last issued in the Spring of 2012 and its drafting late summer and early fall 2012: 

  • Job recovery in the U.S. remains painfully slow while unemployment rates rose to 8.2%. The disappointing news continues to impact the Dow Jones Industrial Average, erasing 2012 gains.
  • JPMorgan Chase announces a $2 billion loss as CEO Jamie Dimon indicates the losses can "easily get worse."
  • Facebook's devastating IPO crashes valuations and stock for other social media giants, while catalyzing a much larger crisis of confidence in the IPO process.
  • Attempting to manage the euro zone crisis, and hoping to increase the flow of credit, the European Central Bank cuts lending rates to a record low: 0.75%.
  • François Hollande becomes the president of France, the first Socialist president since François Mitterrand's term ended in 1995. It is interpreted as a sign of France's displeasure with Germany's dominance with the economic austerity policy in the euro zone.
  • Vladimir Putin becomes president of Russia (for the third time), as antigovernment demonstrations turn violent.
  • The United Nations officially declares the existence of a civil war in Syria.
  • The center-right New Democracy party prevails in Greece's parliamentary elections. However, the far-left Syriza party, which strongly opposed the terms of the EU bailout, comes in a close second. Currently, new Prime Minister Antonis Samaras is struggling for a consensus in his coalition government for another $14.16 billion in cuts and austerity measures he'd vowed to avoid.
  • Muslim Brotherhood candidate Mohamed Morsi is declared the President of Egypt. He is the first from outside the military and the first Islamist elected leader of an Arab state.
  • With over 60% turnout, Libya holds its first national election since Qaddafi. Libya's former interim prime minister Mahmoud Jibril, a Western-educated political scientist, wins in a landslide victory, signaling that Libya, unlike Egypt and Tunisia, is not trending toward Islamist rule.
  • Russia and China veto proposed United Nations sanctions on Syria.
  • 700 million people living in 22 out of India's 28 states lose power.

"The irony of the Facebook IPO is that the company could be a huge winner because of the resulting impairment to the rest of the social media market which could pre-empt future IPOs. Other social media companies may need to take a hit on their own shares just to do a deal...or may need to be acquired by larger enterprises such as Google or Apple… or even by Facebook!" 

John Williamson
San Francisco EisnerAmper LLP


The Pulse of Private Equity 


To put the following expectations in context: According to PitchBook's The Private Equity 3Q 2012 Breakdown, "deal volume fell by 17% in the 2Q 2012 compared to the previous quarter and has been in a steady downward trend for more than a year."


Just over half of the respondents expect that their firms will increase their acquisitions in 2H 2012, continuing the trend and optimism from the first half of the year (despite 1H 2012 results). Less than 10% expected acquisition activity to decrease.

Figure 5: Respondents' Expectations for Closing Acquisitions 


The respondents had an even more optimistic outlook for the industry in general, expecting a 62% increase in acquisition activity.

PitchBook reports that add-on deals represented approximately half of all private equity deal flow for 1H 2012. The report went on to conclude the uncertain investing climate continues to deter PE firms from making large platform acquisitions.1 

Closing Sales or Exits 

Since the beginning of 2011, expectations of the executives surveyed hovered around 40% when it came to seeing an increase in closing sales or exits. Exit activity in early 2011 achieved near-record levels, yet mid-year, exit options vanished.2 

Earlier predictions for this year forecasted private equity will be feeling pressure to "unload assets in 2012.3 However, both exit volume and capital exited plummeted in the second quarter of 2012, declining by 16% and 42%, respectively, compared to the previous quarter.4 

1. PitchBook's The Private Equity 3Q 2012 Breakdown
2. Bain & Company's Global Private Equity Report 2012
3. "Private equity firms under pressure to exit investments; deal making poised to intensify in 2012; according to newly-released," Bain & Company , March 13, 2012.
4. PitchBook's The Private Equity 3Q 2012 Breakdown

For 2H 2012, 51% of executives anticipate sales and exit activity will increase. Fiftyeight percent expect an overall increase across the industry.

The current jump in anticipation of activity may be due to the average 5-7 year lifecycle of a private equity investment. The peak years for the most recent private equity fundraising boom were 2007 and 2008, with more than 1,300 funds reaching a final close in each, having raised aggregate commitments of $665.9 billion and $679.5 billion respectively.5 Those investments are nearing the end of the fund's lifecycle.

Figure 6: Respondents' Expectations for Closing Sales or Exits 


Competitive Bidding  

One of the most consistent trends since 2010 is the reduced levels of competitive bidding activity for both acquisitions and dispositions. Now, in the second half of 2012, expectations for anticipated competitive bidding in the private equity sector has increased significantly.

Figure 7A: Respondents' Anticipated Competitive Bidding Activity: Acquisitions 


"With many private equity funds nearing the end of their contractual lifecycle, focus on portfolio companies in an attempt to maximize exit values is critical." 

Alan Wink
Capital Markets,
EisnerAmper LLP

5. 2012 Preqin Private Equity Compensation and Employment Review 

Figure 7B: Respondents' Anticipated Competitive Bidding Activity: Dispsitions 


Debt Financing Availability Sixty-five percent of executives believed their own firms' access to debt financing would stay the same, while only 54% believed availability would stay the same across the industry. These numbers have been fairly consistent for the past year.

However, there were fewer executives who believed debt financing availability would increase. In fact, 17% believed it would decrease across the private equity sector.

Figure 8: Availability of Debt Financing 


Despite the clear pessimism in the U.S. and less activity as 2012 has progressed, our debt market has outperformed Europe during 1Q 2012. This, combined with the States' comparative resilience in 2011, and the Eurozone sovereign debt crisis, has European buyout firms heading to the U.S. to finance deals.6 

6. "Financial sponsors head to US for debt financing," D. Dunkley, Financial News, May 7, 2012. 

Dry Powder 

Dry powder is committed but uncalled capital, currently estimated at approximately one-half trillion dollars. Although aging, the legendary amounts of dry powder at private equity firms continues to decrease7 …slowly.

Earlier in the year, almost a quarter (24%) of private equity executives expected to put more than 50% of the dry powder to work in 2012. This "rebound" from expectations of 9% to 14% in 2011 was reflective of PitchBook's conclusions at the end of 2011 that with 4,200 "mature" portfolio companies ready to sell and with 409 private equity funds currently fund raising, "it is hard not to be optimistic about what 2012 will look like."

Despite the optimism, the $51 billion invested during 2Q was the lowest for any individual quarter since 2009. By volume (303 deals), it was the worst quarter since before 2006. (See Figure 9.)

7. Bain & Company's Global Private Equity Report 2012  

Figure 9: Private Equity Deal Flow by Quarter 


In 2H 2012, with 45% of the funds reported in this survey at five years old or more, confidence has dropped to 17%,⎯moving back towards the lower expectations reported throughout 2011. The majority of executives felt their funds would likely use 25% or less of the dry powder available. Since the middle of 2011, we still found 28% of executives reporting that 50% or more of the capital from their current funds remain to be called.

Figure 10 


Figure 11 


Figure 12 


The average age of the funds represented in this survey was 4.2 years old, with an average of 40% of the original fund remaining. Respondents expected to put to use an average of 34% of the remaining monies.

Despite the significant decline in deal activity noted during 1H 2012, there was optimism among the respondents. Fifty-eight percent of the respondents felt deals sourced would increase during the 2H 2012; 44% believed more deals would close.

When asked about their own firms, 41% of the executives surveyed felt they would be sourcing more deals than the rest of the industry; another 41% felt that they would be on par with other private equity firms. Only 18% of the executives felt that their firms would close fewer deals than the rest of the industry.

Sector Investment 

As shown in Figure 13, the segments that continue to attract the most interest for investments are business services/other b2b, manufacturing and distribution, consumer products, health care and information technology.

Business services and other b2b jumped back from last half's decline to regain its position as the segment garnering the most interest, attracting 55% of fund executives. Interest in consumer products and green or clean tech also improved.

The most significant decline in interest was in the real estate and housing markets, which dropped from 12% to 4%. Manufacturing and distribution showed a 6% decrease in interest since earlier this year; financial services and life sciences and biotech also showed a decline.

Private equity executives stayed fairly consistent in their interest in health care and information technology.

Perhaps the beginning of a trend: Approximately 5% of respondents selected energy and oil and gas among their other investment interests.

Figure 13: Target Sectors for Investment 


The interest in these segments for 2H 2012 is reflective of the transactions that occurred in the same areas during 2Q 2012. Figure 14 also shows it is similar to the same time period in 2011.

Figure 14: Transactions by Industry 


Time and Activities  

Since the beginning of 2011, funds have focused heavily on new transactions. While there has been a very slight decline, this continues through 2H 2012. Overall, new transactions are a clear priority.

The decline in activity of funds working on their current portfolios seen in early 2012 is still evident and is anticipated through 2H 2012 (though 76% of the respondents noted a moderate-to-high amount of time).

Executives expect to continue to decrease their team's time spent on exits and fundraising for the remainder of 2012. These activities consistently fall behind new transactions and current portfolios in focus, but not necessarily performance.

PitchBook reported 2Q 2012 was the best quarter for fundraising since 2011. (See Figure 15.)

Figure 15: Private Equity Fundraising 


The Pulse of Private Equity has been reviewing the amount of time that private equity fund professionals spend on fund activities since 2009. Figure 16 reviews the fluctuations through 2H 2012:

Figure 16: 2009 - 2012: How Much Time Do You Expect Your PE Team to Spend on These Activities? 


Despite a 10% decrease in activity over the past year, private equity teams continue to spend a substantial amount of time tending to their current portfolios. EisnerAmper asked respondents to indicate the specific areas on which they spend the most time.

Figure 17: In Which Areas Are You Most Involved with Your Portfolio Companies? 

  2H 2012: 
Board 73%
Strategy 69%
Finance 54%
M&A 53%
Improving Operations 50%
Organization Development 43%
Recruitment 34%
Marketing and Sales 30%
Risk Management 20%
Managing Operations 16%
Professional Development 15%
Research 7%
Other 4%

*Respondents were able to select more than one response. 

Despite a slight decrease in focus, portfolio companies are still a concern. The majority of the private equity team involvement is focused on high-level strategic management, less so on operations.

For the past year, executives had, at best, anticipated Boards garnering about half the attention of strategy and finance. While strategy and finance are still clear priorities, Board activity is currently a prime focus.


Overall, new employment in the private equity industry has slowed: 62% of respondents anticipated the number of professionals at their firms to remain the same (as opposed to 56% during 1H 2012.)

For those expecting to increase the number of professionals at their firms, the clear focus was on research and financial skills, 22% and 16%, respectively. Operational roles were noted by 12% of the respondents.

Despite the increasing regulations and regulatory concerns, only 12% of the executives indicated they would be adding professionals to their teams as a result of increased responsibility regarding compliance.

When it comes to compliance-related professionals, compensation has been an issue in comparison to other private equity professionals more involved in deal flow. Of the new positions being created to address compliance issues, 25% of the executives indicated these employees will participate in compensation tied to the investments. However, 31% of the respondents will not be considering any type of long-term compensation.

Limited Partners  

The private equity executives who participate in The Pulse of Private Equity survey have, over time, provided their views of the LPs' concern for fund operations. The recent addition of transparency and fund management's ability to execute demonstrates these areas have the attention of limited partners.

Seventy percent of executives indicated execution was of high interest and the key focus area for LPs. While all of the areas are and should be of concern to LPs, relatively speaking, fair value in the investment valuation process and other fund terms attracted far less interest.


"Although private equity firms have not been increasing internal hiring in the compliance area, regulatory and increased tax complexities are leading to more reliance on third party service providers." 

Michael Laveman
Financial Services
EisnerAmper LLP


Figure 18: Breakdown of Interest for 2H 2012: Private Equity Executive View on LPs' Areas of Interest 


"As the U.S. and global political and economic uncertainty continues, the private equity firms are focusing on managing the performance of their portfolio companies. LPs are looking at management's performance in overseeing these investments and their ability to find and close on new deals." " 

Howard Cohen
EisnerAmper LLP


Figure 19: Areas of High Interest for Investors (LPs)  


Eighty-seven percent of investors surveyed by publishing and data group PEI International indicated institutional investors are piling on the pressure, with high fees now a reason for not investing with a private equity firm. And, with the presidential campaign bringing private equity compensation under scrutiny, it may signal an emerging trend.8 

However, our survey showed 32% of executives anticipate greater requests from LPs and/or institutional investors about managing director compensation. Specifically, they expect the requests will seek details on base, bonus and long-term or carry compensation.

8. "Shareholder spring heads to autumn for private equity investors," S. Meads, Reuters, August 7, 2012.  

Figure 20: Private Equity Executives View of Anticipated LP Requests About Managing Director Compensation 


"While fundraising competition has impacted firms' negotiations over fees, the impact of increased scrutiny on compensation has not yet been fully recognized. Executives can expect a far greater interest by investors in managing director compensation. Of course, the real pressure on examining compensation will be affected by the outcome of the presidential election." 

James A. Hatch
Human Capital Advisory Services Practice
EisnerAmper LLP

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