Permira chief sees potential for exceptional PE returns as valuations fall

Private equity investors may secure some of their best returns by investing in the current market, as reported by the Financial Times. Commenting at the FT Private Capital Summit in London, Dipan Patel, co-chief executive of Permira, noted the current environment mirrors the post-dotcom crash and global financial crisis periods, yielding some of the industry's most successful investments.

Permira manages around €100 billion in assets. While higher interest rates pose challenges for existing portfolio companies and sellers, they could prove advantageous for buyers by driving acquisition prices to more favorable levels. The private equity sector has experienced a protracted slowdown in exits, with reduced IPO activity and increased borrowing costs making it difficult for firms to sell assets at their desired valuations.

Many investors had acquired businesses during the era of low interest rates, and have been hesitant to accept lower prices, limiting distributions to institutional investors and impeding their capacity to reinvest capital into new funds. Artificial intelligence is transforming investment approaches, particularly in the software sector, which has historically seen significant private equity involvement.

Uncertainty surrounding the impact of AI agents on established business models led to a slowdown in software dealmaking earlier this year. Patel stated that software has transitioned from being overcapitalized to undercapitalized from an equity standpoint. Permira, which had previously allocated up to 30% of its investment activity to software, had not completed a software deal in the three years following the launch of ChatGPT.

However, Patel cautioned against assuming other industries would be immune to technological disruption, as investors focusing capital on sectors perceived to be less susceptible to AI could lead to intensified competition for suitable assets.