Sporting what he joked was his "Gordon Gekko" shirt, Irish rock star Bob Geldof cut an unlikely private equity figure on Wednesday as he exalted the industry's virtues and urged top financiers in their annual gathering to invest in Africa.
Speaking for an hour without notes at the SuperReturn International conference in Berlin, Geldof made an impassioned address peppered with expletives designed to tug on heartstrings but also appeal to private equity's profit-making instincts.
"You must go and kick the tires. You are the guys who go where capital needs to go. Capital will only go where it is sent," Geldof said, stretching out his arms as if to reach his audience of private equity executives.
"Do we leave this vast continent, with all the resources we will ever need, do we leave it to China? Eight miles from Europe, do we just leave it to them?" he asked, referring to the distance across the Strait of Gibraltar separating Spain and Morocco.
Geldof first became famous as the frontman of Irish punk rock group The Boomtown Rats, but his work on Africa has overshadowed his early rock career, with his name forever tied to the Band Aid single and Live Aid concerts that raised millions of dollars for African aid.
He is now the chairman of an Africa-focused private equity fund which said earlier this month it had raised $200 million from investors, close to half its targeted size of $450 million.
Dubbed 8 Miles, the fund plans to invest in companies that can develop into "African champions" in sectors such as agribusiness, telecoms and consumer goods.
"We put together our little thing - a goldilocks thing, not too small, not too big, just right. And we will make a lot of money, a lot. For me I want to leave behind me firms, farms, factories. Fuck the money, that's me," Geldof said
RATE OF RETURN
The fund is promising investors an internal rate of return of over 25 percent after a year in which the S&P 500 U.S. stock index was flat and investors are hungry for yields they cannot find in listed equities and bonds.
"He is so right, Africa has great potential, and he was really good in his presentation," said Wael O. Bayazid, a managing director with private equity firm Carlyle Group LP, which is raising a sub-Saharan African fund.
Private equity is often criticised for saddling companies with debt only to sell assets, shed jobs and take out profits -- an image which has not helped the U.S. Presidential candidacy of Mitt Romney, a former private equity executive.
"I have learned that private equity, contrary to the Romney-esque debate in the United States at the moment, can be a major vehicle for positive change in this world," Geldof said.
Geldoff referenced the big payday of some of private equity's titans, including Henry Kravis and George Roberts, who got $94 million each in 2011 from buyout firm KKR & Co LP , in also making a wider case for philanthropy.
"You have got the four houses, the three jets, the 10 cars, the 65th fucking Picasso. What's the point? So its stuff, and right now it's the stuff that will get us out of that mess," Geldof said.
Geldof is right about making the wider case for philanthropy. The FT reports that Stephen Schwarzman, the Blackstone chief executive, took home $213.5m in pay and dividends in 2011, a third more than the year before and topping the scale for a select group of the founders of listed private equity companies. He should follow the lead of Blackstone's co-founder, Pete Peterson, and learn the meaning of enough.
As far as praising private equity, more and more are reporting on its critical role for the economy. The Dealbook examined the myths surrounding private equity by revisiting the top 10 leveraged buyout deals. Some deals were good and others, like the $45 billion acquisition of the Texas energy giant TXU — the biggest leveraged buyout in history — has been a painful investment for its private equity owners.
Some industry experts, however, are warning that buyout firms face extinction in fight for funds:
Private equity firms looking for billions of dollars of new capital for deals are facing a fight for survival in the hunt for a diminishing pool of capital - and losers risk a slow death.
Fundraising has been subdued since the credit crisis. In 2011, private equity firms raised just $263 billion for deals, less than half the $600 billion they pulled in every year at the peak of the buyouts boom.
Massive inflows of capital and benevolent financing markets fuelled a spate of mega buyout deals including TXU, Alliance Boots and Hilton Hotels from 2005 through to 2008.
But risk aversion, a lending freeze and economic woes have drastically reduced investors' appetite to fund new deals.
Though worst fears about a wave of defaults have not materialized, the performance of companies bought out during the boom period has been patchy and firms face a long slog to get their money back on many of the largest deals.
"In Europe, probably more so than in the rest of the world, the amount of funds raised will be substantially lower. My guess is probably a third of what was raised in the boom times," Guy Hands, chairman and chief investment officer of Terra Firma, told the SuperReturn private equity conference in Berlin on Wednesday.
BC Partners last week said it had raised 6.5 billion euros for its latest buyout fund, more than originally expected. But the environment is fiercely competitive.
Apax, Permira, Cinven, KKR, Warburg Pincus, and Providence are all looking to raise multi-billion euro pools of capital.
Others including Advent International, PAI, Triton and Guy Hands's Terra Firma are tapping investors, or will do soon, for funds of a couple of billion euros or more.
At the beginning of 2012, buyout firms were seeking $177.4 billion, a 81 percent increase on the amount they were after at the beginning of 2011, according to Preqin data.
This means the time taken to raise funds is getting longer as investors become pickier and demand more information before taking the plunge. Blackstone Group LP took four years to raise $16.2 billion for its latest buyout fund, BCP VI.
Many had predicted a bloodbath in the private equity industry, with large numbers of firms forced to the wall given the financial crisis, but few have vanished yet because the long life cycles of private equity funds make firms slow to kill.
European buyout firm Candover was a notable exception in vanishing quickly. Those that have had poor performance or prove unable to adapt to a new market may struggle to raise capital, but they will not necessarily vanish overnight, industry insiders say.
"They won't die a spectacular death, but most will just become moribund," said Helen Steers, head of European primary investments at global fund investor Pantheon. "Is that a bad thing? No, it's just Darwinian."
British mid-market firm Duke Street pulled its planned 850 million euro fundraising having secured only a fraction of its target. Instead, it will look to raise money for individual deals as it sells investments and returns cash to investors.
However, investors say that can spell the beginning of the end.
Firms that raise money for individual deals can be less nimble when it comes to pursuing acquisitions as the capital is not instantly at their disposal. And they face the prospect of losing their top talent to rivals, losing investors' trust.
"(Firms) may come back if they keep a team together. General partner continuity is probably the first thing on investor's due diligence list - if the people that did the deals are no longer around it raises warning flags," said David de Weese, partner at Paul Capital, a firm that specializes in buying investors participations in private equity firms.
A lot of attention in the industry has focused on Terra Firma, which battled hard to keep control of music group EMI, but eventually lost it to its creditor Citigroup.
Hands said he was "100 percent confident" that Terra Firma would raise a new fund, but asked about the size of that pool of capital he joked: "That's what I'm less confident on."
"I think a lot of private equity firms will inevitably disappear over time. But it is going to take some time, it is not going to be quick."
"As Darwin said it is not the survival of the strongest, its the survival of the most adaptable," Hands said.
Survival of the most adaptable is indeed the case. Reuters reports that bosses of some of the world's largest private equity groups told the industry's annual get-together that their growth into alternative asset managers, investing in everything from credit to real estate, was necessary for their investors to beat the economic cycle:
Private equity, one of the alternative asset classes offering diversification from stocks and bonds, has traditionally been about leveraged buyouts - where the buyer funds the purchase price through borrowing, using the target company's assets as collateral.
But tighter financing conditions have restrained this kind of financial engineering and investors accustomed to double-digit percent returns in private equity have had to settle for outperforming public markets by only a few hundred basis points.
Financial industry titans, who have amassed vast fortunes by buying and selling companies, said the best opportunities now lay in cherry picking the offerings of major asset managers.
"Buyouts, which is what people normally think of when they think of private equity, are going to be an increasingly small part of a more specialized product base available to the limited partner community," James Coulter, co-founder of TPG Capital LP, told the annual SuperReturn International conference in Berlin on Tuesday.
Many major buyout firms have developed funds for investing in other alternative assets.
These include corporate debt, real estate, infrastructure, hedge funds and venture capital. They have grown to such an extent that in many of the major firms they have collectively overtaken private equity in assets under management.
Where are PE funds looking to invest? Reuters also reports that private equity firms stand to benefit from the misfortunes of Europe's major telecom operators as they snap up mobile assets being sold off by incumbents who need to pay down debt and focus on their core markets.
Where else are PE Funds focusing their attention? Below, Bloomberg's Cristina Alesci reports on private equity firms watching the energy sector for deals. Cheniere Energy Partners LP,operator of the largest U.S. natural gas-import terminal, said Blackstone Group LP agreed to invest $2 billion toward construction of a $10 billion plant to export the fuel. She speaks on Bloomberg Television's "Money Moves."