Private Equity Industry Celebrates Success in Berlin

In Berlin, the German private equity industry has just celebrated a fine success: its lobby association BVK welcomed Finance Minister Christian Lindner as a speaker at the annual meeting in the morning and Economics Minister Robert Habeck in the afternoon. Both were warmly received by the hundreds of listeners: not just the head of the FDP and thus the party that financial investors tend to be closest to. But also the man of the Greens, with whom the investment professionals tend to be strangers.

In doing so, they gave themselves good, if not surprising, testimonials. Contrary to their reputation, many of the leading German investment managers are not cold capitalists who only have returns in mind. But men and women who think outside of the business in the big picture – and also recognize the perspective of the politically more distant side. Of course, another factor may also play a role: it doesn’t hurt to get on well with the Ministry of Economic Affairs, which issues bills relevant to the industry. But a few words of praise for the ministry under Habeck’s leadership could also be heard in conversations at the evening reception, without recognizable calculating intent.

“We’re going to bite our butts”

Lindner and Habeck delivered strong performances at the anniversary in the capital representative office of Deutsche Telekom in difficult times for them. In a polished speech, Lindner joked about the liberal opposition within the coalition and campaigned for a “turning point in economic policy” given the weak momentum in Germany. Habeck spoke hastily and seemed offended, but scored with open and original language. Namely on the state of the coalition, which, by the way, according to the findings of both Lindners and Habecks, actually delivers quite good results, but just bumps there in the process. “We regularly bite ourselves in the butt that we can’t get it sold better,” said Habeck. But that, as he hints elsewhere, will soon pass, because: “The darkest hour of the night is always before sunrise.”

If only someone among the financial investors would take this vivid language as an example: Next week the industry will meet again in Berlin, but this time on a much larger scale. The international annual high fair “Superreturn” (“Super Return”) is coming up. The speakers from all over the world tend to present their assessments of margins, market cycles and (price) multiples in such a dry manner that it creates dust. Exceptions confirm the rule – like veteran David Rubenstein, co-founder of the industry giant Carlyle, who illuminates the big moves in politics and business with wit. In the meantime, tax havens like Guernsey are presenting their advantages at stands in the corridors and demonstrating the industry’s talent for not neglecting the small picture in addition to the big picture: the optimization of one’s own monetary well-being.

Plenty of own money, but no credit

In terms of content, a contrast characterizes the situation: on the one hand, the financial investors manage capital commitments from their lenders at a record level: The “dry powder”, according to the technical jargon, consisted of 3.7 trillion dollars according to calculations by the Bain consultancy at the end of last year. On the other hand, interest rates have risen and the economic outlook has deteriorated; Banks have been reluctant to extend loans for transactions worth billions for some time. This not only burdens the private equity industry, but the market for mergers and acquisitions as a whole, as the Schenker example shows: Deutsche Bahn is considering selling its logistics subsidiary – but needs investment companies to drive up the price in the auction. But the investors have difficulties raising the outside capital for such a transaction. “The process should only start when private equity gets the financing again,” says an insider from the investor scene (FAZ of May 27). After all, the investment company Partners Group is sending a signal: It has invited investment banks to presentations in order to pass on the heating cost reader Techem, valued at around 8 billion euros. Partners Group is obviously banking on the fact that sufficient outside capital will be available on the market in a few months. Globally, the added volume of investment purchases and sales with financial investors in the year to date (as of June 1) has shrunk to a third: to 213 billion from 659 billion euros in the same period of the previous year, as the data service provider Dealogic calculates.