Dear IPEM friends,
Private equity is the ultimate people business. But in an era of remote working and social distancing, the asset class must adapt
Private equity thrives on human interaction. Whether it’s uncovering a hidden gem of a deal over waterside drinks at IPEM; the gut feeling you get when looking into the whites of a prospective management team’s eyes or a reassuring handshake from an institutional investor preparing to part with millions of dollars based purely on the integrity and skill of those in the room – this is a people business through and through.
Confronted with limits on non-essential travel, closed offices and restricted in-person contact, in many ways, the asset class has lost some of its identity. Certainly, the absence of face-to-face meetings was blamed for an initial drop off in deal activity – and fundraising – that rivalled that of the financial crisis. Private equity simply wasn’t set up to work in the cloud. This is an industry that prioritizes proximity. Just look at how firms congregate by postcode, in Parc Monceau, Mayfair, Park Avenue or Sandhill Road.
Indeed, in many ways, private equity has defiantly resisted the encroachment of technology in order to preserve a focus on relationships. There is a sense that the industry must not be stripped back to data sets and algorithms, but must continue to operate in the realm of what the Chinese call “guanxi” – a system of interconnecting networks that facilitate business based on trust.
It is futile to rally against reality, of course. Private equity is subject to the same upheaval as everyone else. There is a pronounced need for the industry to both accept change and to adapt. Crucially, however, it is also important to recognize that there could be advantages to being forced to adopt a new way of working – from a renewed emphasis on objective analysis to a shakeup of the old boys’ club.