Thinking Alike: Entrepreneurs are Comfortable with Private Equity
2020 BNP Paribas Global Entrepreneur Report
BNP Paribas Wealth Management has recently launched its Global Entrepreneur Report 2020 Part II focused on Private Equity and Private Real Estate. One of the most striking takeaways is the strong confidence about the asset class demonstrated by private investors, with 69% of them declaring they are “confident” or “very confident” with the segment.
While Private Equity is still viewed as an alternative asset class, the result makes empirical sense. Private Equity firms and entrepreneurs share similar points of view about investments.
First, the focus on companies’ operational improvement and growth is at the heart of both entrepreneur-led and private equity-led businesses. Most Private Equity firms hire senior advisors and operational partners to focus on how to better run the companies they acquire, ensuring that adequate investments are maintained or accelerated. Similarly, entrepreneurs live and breathe with their own business, focusing on operational excellence and performance, ensuring they surround themselves with the best executives.
Secondly, privately owned companies and private-equity-led companies do not have to report their results publicly and can therefore avoid having part of their strategy dictated by short-term market expectations. With generally long-term financing and investment strategies focusing on long-term value creation rather than on short-term objectives, these companies can weather market storms and stay focused on operations.
The combination of these two factors set the stage for a common cultural language enabling entrepreneurs to be intrinsically comfortable with the Private Equity asset class.
“Entrepreneurs are familiar with the risk involved. They have strong opinions on market trends and these are likely to evolve, and the medium- to long-term timeframe is less of an issue for them because they’re interested in exceptional stories or ideas to invest in. They’re following the mantra that made them successful – that with a little patience, an excellent idea will inevitably generate profit. Many entrepreneurs are also coming to the market younger, exiting the business younger and taking money out of their business at an earlier stage on the curve. The trend means there is new liquidity coming to the market from entrepreneurs who set up their business in their 20s, sold in their 30s, and are more familiar with the asset class than previous generations, so are confident and ready to reinvest.”
Luc Leclere, International Europe Market Manager at BNP Paribas Wealth Management
Finally, with Private Equity delivering consistent returns in excess of listed markets and looking for investors willing to finance the real economy, entrepreneurs have become – alongside institutional investors – natural investors in Private Equity funds.
Interestingly, the report’s findings show some skews in the affinity between entrepreneurs and Private Equity. Entrepreneurs from North America are more comfortable with the asset class (84% of them) than in Europe (72%) and in Asia (only 53%). These differences are quite significant and can possibly be explained by the perceived maturity of the Private Equity. industry in each region. Indeed, the first Private Equity. transactions originated in North America. A recent report from McKinsey showed that despite significant growth across geographies, North America and Europe still accounted for more than 80% of all buy-out funds globally.
Another interesting insight is the difference in perception about Private Equity between generations. The Global Entrepreneur Report highlighted that 71% of Millennipreneurs (35 and younger) declared they were comfortable with the asset class, compared to only 45% for Boomerpreneurs (aged 55 and older) and 83% for Gen-X entrepreneurs. There again the difference between the older generations and other entrepreneurs is quite significant, possibly caused by a lower familiarity with an asset class that is more recent than the traditional asset classes.
In spite of these differences, as highlighted in the Global Entrepreneur Report 2020, entrepreneurs continue to be increasingly comfortable with the Private Equity asset class, driven by similar perspectives on long-term value creation in private assets. Most Private Equity firms have been investing in entrepreneur-led businesses with the aim to accelerate their growth and create value. Interestingly, we now see entrepreneurs’ wealth invested significantly in the Private Equity asset class.
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