Name: Don Vollum
Company: Vista Ridge Capital Partners
I'm a managing partner at a fund of funds and am looking to generate the highest return I can for my investors, in an ethical, sustainable way. In my case, in a way that isn't directly correlated to stock markets. In my opinion, that is a social good in itself -- my investors need the financial returns to fund their retirements, their charitable purposes or both.
The most sustainable way private equity can do so is by improving their underlying portfolio companies in some way. That improvement may take the form of growing the business, but it may also take the form of shrinking the business. Perhaps it requires making use of comparative advantage to move elements of the business to another location-- on shore or off shore.
It's also true that not all companies should be public -- in fact, the majority are not and should never be listed. However, these companies still need a mechanism for capital formation, growth and eventual exit -- and that's provided by the private equity ecosystem, both by funds and individuals. The fund side of the business allows passive investors to participate in this area of the economy-- and capture the returns available in less liquid, less transparent private markets.
Using lots of leverage and buying cheaply can generate high returns, but in my opinion, and I think history bears me out on this, that isn't a long term sustainable business model. That business model worked when there were many grossly inefficient public companies which could be acquired cheaply, but those inefficiencies have largely gone away.
Dividend recaps are another way in which private equity can help me to meet my return goals, and manage risk. They are a tool which, when used appropriately, allow the investor to take money off the table and reduce the level of risk in the portfolio.
As for your questions 2 and 3, I think the answer is to look at any of the well managed public pension plans-- think Oregon and Washington, for example. Private equity has made a big difference in their ability to meet their pension obligations to their pensioners. Obviously, poorly managed private equity programs may have had the opposite effect in some cases, as well.
Unfortunately, saying "I generated high, uncorrelated returns for my investors, so they can fund their retirements and charitable purposes" isn't nearly as good a soundbite as "I created 100,000 jobs!" or "He closed factories and laid off workers!"
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