Private equity firms that were once Wall Street’s disruptors have turned into its establishment, and are turning to a solution they know well: deal-making.
In the latest move, General Atlantic, known for taking stakes in fast-growing private companies, is buying Actis, which owns telecom towers in the Balkans and data centers in Chile. BlackRock, diving into alternative investments after years of false starts, is skipping right over pure-play private equity with its $12.5 billion acquisition of GIP, an infrastructure giant. That follows TPG’s deal last fall for credit and real-estate specialist Angelo Gordon.
Private equity has outrun both its roots and its name. Faster-growing corners of investing, like credit and infrastructure, and faster-growing regions, like the Middle East and Asia, are pushing Wall Street and City veterans beyond their LBO origins. So are their customers: Pension funds want a handful of investing superstores rather than a sea of boutiques, and are offering bigger checks to fewer managers.
“We don’t think of private-equity as being a mature industry but it is,” said Daniel Lavon-Krein, a partner at Kirkland & Ellis. “They’re the incumbents, and have all the pressures and incentives that come with that.”
Of 116 M&A deals struck by big alternative asset managers in recent years, one-third have moved them into credit, real estate, or other types of investing, according to data from Bain & Co. One-fifth have added a new geography, mostly in Asia.
The CEO of Partners Group predicts that 11,000 private-equity firms will whittle, by consolidation or evaporation, to as few as 100 “next generation platforms” over the next decade. The CEO of EQT, a European giant on a deal-making spree of its own, sees maybe a dozen global firms and a handful of niche players. “The rest,” Christian Sinding said, “will be stuck in the middle.”
