BVCA members draw in their horns

The majority of the BVCA’s members believe the problems in the worldwide credit markets will lead to a downturn in the UK economy. BVCA chief executive Simon Walker argues the asset class will prove its mettle in more gloomy times.

More than two-thirds of the members of the British Private Equity and Venture Capital Assocation are expecting the UK’s economic environment to worsen in the coming year up from 48 percent in September, according to a survey run by UK polling group YouGov and the industry body.

 Tough strategic decisions are what private equity is about. The whole model is not rooted in its use of leverage.

Simon Walker

The proportion of firms that view the UK as an unattractive place to do business has also risen from 7 percent to 29 percent since September.

Simon Walker, chief executive of the BVCA, said: “Nobody expected the levels of debt to remain. It was a blip. Private equity succeeds in a range of economic conditions because of its ability to change. In gloomy times private equity has something to add because of the way it backs businesses. Tough strategic decisions are what private equity is about. The whole model is not rooted in its use of leverage.”

Echoing widely voiced concerns private equity firms’ highly leveraged portfolio companies may suffer in a downturn there was a growing discontent among members about the health of their portfolios.  Five percent of members view the health of their portfolio companies very favourably, down from 9 percent, while the number that view their portfolio companies unfavourably has gone up from 2 percent to 7 percent. 

Members perceiving difficulties in the business climate has increased from 16 to 19 percent, although 54 percent of members believe the environment is favourable.

On the fundraising side, 42 percent of members believe the climate is positive in comparison to 43 percent in September, while 28 percent believe it is problematic down from 30 percent in September. 

Nearly 80 percent of members expected the UK economy to grow between 1 percent and 2.5 percent while 58 percented expected base rates of between 4.51 percent and 5 percent in December 2008 down from the present 5.5 percent.