Today I have a message to all university students wanting to enter the business community and make money. Be wary of following the formula of your predecessors, which was to become an investment banker.
You can still make money that way, but that’s not where the demand is.
One of the best ways to determine where future demand is going to come from is to talk with private equity people. A decade ago, they wanted the latest whiz investment bankers. But today, rule number one is that investment bankers and even conventional bankers should not be CEOs.
I learned this during coffee with London and Hong Kong executives at one of the world’s largest private equity investors, Pantheon, which has invested some $27 billion in 1,000 private equity funds.
They are looking for people who really know how to run a business in today’s world. The successful private equity consortiums are those with access to people who can manage. And those people are worth paying large sums.
Why are bankers on the nose?
In simple terms, their past balance sheet gymnastics have given private equity a bad name and, more importantly, the main challenge of corporations in 2014 is not balance sheet structures but management in a rapidly changing environment.
In many circles, private equity has become linked to overborrowing of enterprises and flogging off companies to the public at inflated prices. In Australia, Myer is the classic example.
I know many burned investors who have vowed never again to invest in IPOs that come out of private equity stables, who say they were artificially boosted and sold at the peak.
Pantheon says the new golden rule to confine investment bankers to a role in financing and not to have them running the operation.
We agreed that in Australia, there are two gaping holes in the way we are running businesses. We have a large number of family operations with elderly founders that are struggling and a large number of public companies that have divisions that are unable to perform.
Even among listed companies, I am seeing many enterprises struggling to find the management talent that can adapt their operations to cloud computing, new marketing and distribution methods and so on. Those enterprises that get it right have a huge advantage
The Pantheon people say this is a global problem and has become a new direction in private equity consortiums. It’s an enormous opportunity for good management teams.
Pantheon is looking to invest in private equity operators with access to top CEOs who can transform businesses.
In Australia, private equity consortiums will find plenty of operations to invest in, but it might be harder to find the right CEOs.
Pantheon also tells me that the latest boom is in buying good Spanish businesses that are priced way below equivalent operations in other parts of the world.