15 November 2007
City bosses were told yesterday that the private equity model is heading for significantly lower returns in the current credit crunch.
Jon Moulton, Managing Partner of private equity house Alchemy, speaking on a panel at the CIMA annual conference, warned the audience of finance directors:
'The private equity market is slowing down markedly. A lot of returns have been financed by the galloping debt market. However the money from Collaterised Loan Obligation (CLO) vehicles has now dried up – there simply is no money left. Large buy-outs are therefore un-fundable at present. I predict an era of significantly lower returns.'
He also went on to warn of possible serious fall-out arising from the collapse of accounting due diligence on some of the larger deals witnessed at the peak of the cycle earlier this year.
'We have seen in the last two year bubble a loss of integrity in the system and we have seen excess. When many of the processes and controls are not there you have a high risk of serious errors and a sporting chance of fraud.'
However, he did stress the continuing significant role of the private equity model although it would involve significant change. This more optimistic view was echoed by panel member Simon Laffin, an adviser to private equity, who said:
'Private equity will continue to play a significant role in the economy but it will have to evolve. It will have to be cleverer at buying assets. Private equity houses will probably focus more on building businesses through corporate development.'
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For further information or photos of the panel, please contact:
Claire Grewer
Press Officer, CIMA
+44 (0) 20 8849 2300
Claire.Grewer@cimaglobal.com
1. CIMA (the Chartered Institute of Management Accountants) is the only international accountancy body with a sole focus on business. It is a world leading professional institute that offers an internationally recognised qualification in management accountancy, focusing on accounting in business, in both the private and public sectors. It is the voice of over 158,000 students and members in 161 countries. CIMA is responsible for the education and training of management accountants who work in industry, commerce and not-for-profit and has more members in the public sector than any other UK based body. CIMA prides itself on the commercial relevance of its syllabus, which is in tune with the activities of high performance organisations, and evolves continually to reflect the latest developments in global business. CIMA has been nominated as a UK superbrand for a second year in a row this year and for the first time in Sri Lanka. According to independent research conducted by the University of Bath School of Management, CIMA's syllabus and examination structure are the most relevant to the needs of business of all the accountancy bodies assessed. See the CIMA difference report for further information at www.cimaglobal.com/thecimadifference. CIMA is committed to upholding the highest ethical and professional standards of members and students, and to maintaining public confidence in management accountancy. For more information about CIMA, please visit http://www.cimaglobal.com/
