RESEARCH TRIANGLE PARK, N.C. – Jim Verdonik, a lawyer and a long-time veteran of the entrepreneurial community, sees some good news and some bad news in the latest report about the state of private equity from the Private Equity Analyst.
Private equity funds are awash in money, buyouts on Wall Street continue at a record pace, and as the market climbs more technology and life science startups can look to go public or be acquired.
Yes, in many ways the exit ramps to liquidity and profit are open.
At the same time, even with so much money around, the Private Equity Analyst report found that limited partners – the investors, such as the state of North Carolina – are gaining leverage in terms of generating lower fees, compensation and expenses.
Local Tech Wire asked Verdonik, a partner in the RTP-based firm Daniels Daniels & Verdonik, about what his analysis of the latest private equity fund ratings.
“I think these changes in compensation reflect the growing number of private equity firms, the larger sized deals and the influx of less experienced managers,” Verdonik said. “There are dollars being managed by more people with less experience.
“In theory lower fees are better for LPs. However, lower fees may be a sign that there is too much money being raised to reinvest at the traditionally high rates of return that characterized private equity in recent years. This may be the sign of a private equity bubble.”
Verdonik also sees promise and peril in the numbers in terms of venture funding for regional firms.
However, if there is a “private equity bubble,” Verdonik said VCs and those needing VC funding could benefit.
“(A) demise in private equity might be good for RTP, which generally has smaller and younger companies than in other geographic areas,” he said. “The primary positive aspect of private equity for RTP is that private equity deals are part of what is driving public stock market prices higher.
“Strong public stock markets are good for local companies either looking to do an IPO or looking to sell themselves to public companies. So, you might consider private equity a wash for RTP companies with small plusses and minuses canceling each other.”