“The private equity model works,” he said in a Bloomberg TV interview at the World Economic Forum in Davos on Wednesday. “It puts capital to work with experts that really help drive these companies.”
Pagliuca said private equity has “absolutely not” peaked and will still be able to deliver the standard 18% to 20% rate of return in the coming decades.
“We’ve maintained those returns now every decade for 40 years,” he said. “It’s a great business model.”
Buyout firms are readjusting to an environment of higher interest rates that’s making it harder to finance deals and juice returns by loading companies with cheap debt. Valuations have tumbled in both the public and private markets.
Rising rates are bringing a reckoning for those firms that invested heavily in speculative technology companies at super-high multiples, according to Pagliuca. Bain has largely steered clear of this market and its portfolio is doing “pretty well,” he said.
There is no doubt that a version of the private equity business model continues perform. The investment practices of the world’s largest sovereign wealth funds, where the holding periods stretch from years to decades is a case in point. They have the financial resources to buy in times of market stress and hold for the long term. There will never be a time when buying low and securing growing cashflows with an infinite holding period will fail.Click HERE to subscribe to Fuller Treacy Money Back to top