The Stern Opportunity

The Stern Private Equity Club (SPEC) held its Fifth Annual Private Equity Conference on Friday, March 5, themed "Strategies in an Uncertain Market" and sponsored by Ernst & Young, Kirkland & Ellis LLP, Pitch Book, and Thomson Reuters. The morning began at 9:30 a.m. with a catered breakfast, as more than 300 attendees, consisting of current students, alumni, and industry professionals, waited for well-known Stern finance professor Roy Smith to kick off the conference. It was difficult not to get excited seeing the tenth floor of Kimmel packed with so many recognizable names as well as faces eager to learn. In his opening remarks, Smith set the tone of the conference saying that the private equity industry, although taking the right steps since the crisis, is still very much opaque and in need of right sizing. The Keynote Speaker, Mark Patterson, Chairman of MatlinPatterson, continued with his outlook on the markets and concluded that the crisis has proven that the sophisticated models are no substitute for "peasant logic" based on economic fundamentals.

The first panel, Distressed Investing and Restructuring, was moderated by Edward O. Sassower from Kirkland & Ellis and included Seth Freeman from EM Capital, Shary Moalemzadeh from the Carlyle Group, Max Holmes from Plainfield Asset Management, and Steve Zelin from the Blackstone Group. The panelists answered macroeconomic questions such as whether the U.S. is experiencing a sustainable economic recovery and microeconomic questions regarding the current trends in Chapter 11 bankruptcies. The panel agreed that the recent economic recovery since the fourth quarter of 2009 has been mostly fueled by the Federal Reserve's purchase of distressed assets from financial institutions, as well as other monetary policy initiatives, and that economic fundamentals need to improve for growth to be sustainable.

Following the panel everyone proceeded to the ninth floor, where two panels were held simultaneously to indulge the different interests of the attendees. The Venture Capital panel, themed "Technology for a New Economic Age," featured David Rose from New York Angels as the moderator and Stephen Fields from McCarter & English, Gunnar Fremuth from PEI Funds, Matt McCooe from Chart Venture Partners, and Matthew Smith from Connecticut Innovators. The Infrastructure Investments panel, themed "An Evolving Asset Class," was moderated by Sean Maloney from Kirkland & Ellis and included panelists Barry Gold from The Carlyle Group, Matthew Harris from Global Infrastructure Partners, Trent Viche from Blackstone Infrastructure Partners, and Mark Weisdorf from JPMorgan Asset Management. Each panelist had very strong opinions about what constitutes an "Infrastructure" investment, but all agreed on the fact that riskiness of an investment is more important than the label. However, panelists emphasized the fact that infrastructure in the U.S. is not as privatized as Canada, Europe or Australia due to political tensions between the local and state governments as well as the federal government. Answering a question regarding career opportunities for MBA students, Mark Weisdorf gave the good news that firms in the field are hiring MBA students with investment, infrastructure, or banking experience.

The Conference continued with a networking lunch where tables were set up according to interests or backgrounds of the attendees. At one table, Edward I. Altman, the Max L. Heine Professor of Finance at Stern, gave an entertaining and instructive speech about the current conditions and outlook in credit markets and the mortality rate on LBOs. After holding a poll on the shape of the economic recovery, including the "V", "W", "square root", "inverted square root" and "L turned into a chair," he explained how to read the spread between high-yield Treasury bonds. He explained with ease the reasons 2009 turned out to be much better than expected and the challenges the U.S. economy faces in the next few years in refinancing the loans coming due in 2011 through 2014.

The last panel of the day, "Buyouts: Challenges and Opportunities in the Current Environment" was a perfect end to the discussions where moderator Jeffrey Bunder from Ernst & Young and panelists Anil Shrivastava from Vestar Capital Partners, Mitchell Davidson from Post Capital Partners, Donald Gerne from Greenhill Capital Partners, Mike Movsovich from Kirkland & Ellis, and John Jonge Poerik from Linley Capital discussed the current issues with buyout investing. They answered the obvious question we all wondered ("Are buyouts back?"), and concluded that although buyouts have started to return, overall valuations have not contracted enough for private equity firms to find attractively priced companies with good management as they did after the 2001 recession when they were able to capture significant returns. There was also talk of the changing LP/GP relationship where the LPs once again have the advantage given liquidity issues caused by the denominator effect.

This remarkable conference concluded with a networking reception where attendees had the opportunity not only to share thoughts on the discussions and catch up with old friends but also to exchange business cards-a lot of them. The first year officers are looking forward to taking over leadership of The Stern Private Equity Club and running as successful a conference next year.

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