Who will be the biggest winners from the UK’s economic recovery?
The answer could be the ambitious, privately-owned growth businesses that private equity firms have been working so hard on during the lean times. That hard work is about to start paying dividends.
How, then, do investors get access to such businesses, which remain in private hands rather than public ownership? The good news is that exposure to private equity investments is increasingly accessible to all investors through a growing number of listed funds in the sector. These professionally managed funds now offer investors a route into an industry that was once the preserve of the institutions – and the level of liquidity they need to feel comfortable.
Now may be the moment to take advantage of the new-found accessibility of this asset class. Headwinds remain, but the UK’s economic recovery is now on a firmer footing. However, businesses will only begin to see the fruits of that recovery during the course of 2014.
The good news is that the businesses held by private equity owners are well-placed to benefit from this type of growth. Not only are many of them in the right sectors (such as industrials, financial services and business services) to get a lift from a broader recovery, but they are also in the right shape to take maximum advantage.
So far, these businesses have been cautious. Management teams want to be sure that nothing will derail the recovery. They worry, for example, about what will happen when policymakers around the world bring quantitative easing programmes to an end. They wonder whether the UK can withstand interest rate rises. And they fear the potential for further shocks from the eurozone.
However, there is every reason to expect that these businesses are on the verge of capitalising on the prudence they have shown in recent times.
Many businesses have spent the years since the crisis focused on survival rather than growth. Private equity owners have been working hard to manage these businesses through the difficult times but have also been positioning their businesses for growth. For example, private equity houses add value by bringing new skills, experience and expertise to the table and they can provide smaller businesses with the sort of quality of board that is normally the preserve of very large enterprises.
Often, this is the final ingredient for ambitious businesses looking to step up their development. With a sound underlying business model and a keen appetite for growth, these firms just need the extra support that private equity can provide in order to put in the sort of strategic work necessary to reach the next level.
An opportunity now exists for investors to get exposure to companies that are just about to push the button on some really exciting plans.
