Reuters Summit-Quotes from Private Equity, Hedge Funds summit

Published: 23 Mar 2009 17:56:40 PST

(For other news from the Reuters Private Equity and Hedge Funds Summit, click on http://www.reuters.com/summit/PrivateEquityandHedgeFunds09?PID=500)

LONDON, March 23 - Following are key quotes from the Reuters Hedge Funds and Private Equity Summit in London. Below are some quotes from the summit's first day speakers

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MARK KARY, CHIEF EXECUTIVE OF POLAR CAPITAL:

ON TALENT IN THE HEDGE FUND INDUSTRY:

"The idea that you can have 10,000 hedge funds all with a short book, all with a long book, all risk managing and all doing it supremely well is... absolute nonsense. It's a skill set that only a very small number of people can execute properly."

"This went from a $400 billion business to a $3 trillion business in the space of seven years and I just don't think there's enough talent around to be able to do that."

"Now is the first really, I think, serious opportunity to start identifying talent. And there is more talent around. If we find the right team, we're very happy to do something."

ON FEES:

"There are some very high fee structures out there. If you're at 3 and a half and 45 and you're down 40 percent last year, I think it's just taking the mickey."

"Not all the hedge funds that will close have closed yet, that is clear. There is a lot of distress out there in terms of getting rid a whole bunch of illiquid stuff. Once all that is done, are you going to be able rebuild your business or not... I don't think any of them deserve to rebuild, but some inevitably will build their businesses."

ON CURRENT MARKETS:

"The unusual thing about this bear market, as opposed to the bear market of 2001/2002, is the bear market in 2001/2002 was in the tech sector. This thing has hit everything. So you have to pick around, the opportunities will be in a large number of sectors and geographies."

"In a bull market where you can employ lots of leverage, where the whole word hedge funds has become a bit of a fashion item, it's for some people deeply attractive. People raised a lot of money."

ON PERCEPTION OF HEDGE FUNDS:

"You (the press) make life incredibly difficult for those who do have a decent story to tell. You're also right that the industry has done itself no favours. The large majority of people haven't performed that well. One or two have performed really very very poorly. And I think that's an understatement."

BILLY GILMORE, HEAD OF PRIVATE EQUITY AT SCOTTISH WIDOWS:

ON WHERE TO INVEST CLIENTS' MONEY:

"The reality is that in 2009, there will be very little fund raising in the European buyout space."

"There are two areas that we find to be of interest. Firstly is the area of Secondary transactions, that is something of real interest to us. There are opportunities to make meaningful returns from buying secondary positions in European buy-out funds. Secondly, in the turnaround, distressed space."

RETURNS FROM SECONDARY MARKETS:

"There is no reason at all that you can't make the same return from secondaries that, historically, private equity has made in a primary sense."

"Meaningful double digits, closer to twenty than 10."

ON DISTRESSED FUND ALLOCATION

"In a typical year, and this is not a typical year, we might allocate around 200 to 300 million euros to private equity funds. I just don't think we'll allocate as much as 200 million this year."

"I think we will at least commit a hundred million, and that will be a combination of secondaries, turnaround, distressed, with half (in distressed assets)."

ON MEGA DEALS IN PRIVATE EQUITY SPACE: "You won't see the mega deals coming back for some considerable time. I think there will be fewer banks willing to lend to buyout transactions. The onus on more equity and less debt in the financial structure, which in itself will put a ceiling on the size of a company private equity can buy. But I don't think of any reason to believe that at some point there will not be more buyout activity."

ON BIGGEST CONCERN:

"The default rates on buyouts are the biggest concern. That would be the thing that I'm most worried about. It's the tip of the iceberg today. We all know it's going to get a lot worse. It's just a question of how much worse."

ON OPERATING STRATEGY

"We are trying to find buyout funds with an operating mentality, who can grow the earnings of the portfolio company ahead of the pack. They can be very hands on about how they grow the business."

"That is going to be what makes the difference in the next cycle, the ability to really set the agenda, not at the strategic level -- which private equity has been quite good at -- but at the operating level."

ON FEES:

"I'm pretty certain that when fundraising starts to take off again, limited partners will be looking very hard at the fee structure that buyout funds charge. I would not be surprised to see fees coming down to more realistic levels."

(Compiled by Lorraine Turner; editing by Simon Jessop) (For summit blog: http://blogs.reuters.com/summits/)