Reuters Summit-UPDATE 1- Quotes from Private Equity, Hedge Fund

Published: 25 Mar 2009 09:21:38 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 25 - Following are key quotes from the Reuters Hedge Funds and Private Equity Summit in London. Below are some quotes from the summit's third day speakers.

SIMON WALKER, CHIEF EXECUTIVE OF BRITISH VENTURE CAPITAL ASSOCATION (BVCA)

ON ROLE OF PRIVATE EQUITY:

"We are seeing private equity in a position to help us out of the recession. That's going to take a hell of a long time. But private equity funds are sitting on a trillion dollars in funds worldwide, and 150 to 200 billion of that (is) in Europe, to be invested in the course of the downturn.

"One of the truths about private equity is the best time to invest is during the downturn.

ON FEES:

"Fee structures are changing in private equity. We are seeing that already. It's going to be part of a commercial and negotiate process.

"What's important about the old 2 and 20 system that applies to us is that although it can provide, and has provided, very substantial rewards for success, what it does not provide is rewards for failure.

"Bluntly, if you'd been using the private equity model in the banking sector I don't think you'd have the incentives to inflate risk as much as you have... We are seeing some changes already and I don't doubt they'll be more."

ON REGULATION

"You cannot regulate Europe out of recession. That will not solve the problem... People think that hanging all the bankers from lampposts will solve our economic difficulties, and it won't."

ANDREW BAKER, CHIEF EXECUTIVE OF ALTERNATIVE INVESTMENT MANAGEMENT ASSOCATION (AIMA)

ON PERCEPTION OF HEDGE FUNDS:

"There is hope of rehabilitation and redemption somewhere down the track.

"I'm still not telling taxi drivers that I work in the hedge fund industry. Give it a couple more days and I might."

"The last bit of the story that we now need to address, which we've been pushing very hard behind closed doors in policy making circles, is that there is a general perception that there is a hedge fund problem, because of the techniques that are being deployed with a whole variety of market participation.

"It's best typified by me just saying AIG financial products and Bernie Maddoff. These are not hedge funds. They are seen as being part of a hedge fund problem."

ON DESCRIBING THE HEDGE FUND INDUSTRY:

"We've had to move away from pure left-brain descriptions of what our industry does, i.e. technical market-efficient arguments, through to right-brain descriptions, which are more emotional. It's about people's savings and people's livelihoods.

ON SIDE POCKETING:

"There clearly need to be changes in the margin to cope with side pocketing... and (there) probably needs to be some kind of multi-year smoothing, to take out sudden death, year-end payments.

COLIN MCLEAN, MANAGING DIRECTOR OF SVM ASSET MANAGEMENT

ON EQUITY MARKETS:

"I don't think what we're seeing just now, as a rally, is different than the four or five we've seen in the last year. It doesn't look all that much different to this time last year, in particular.

"I still think the markets tested those November lows and have bounced off, but I still think they'll test them again.

"I think the overall economic background will see us back down at the lows of last year."

ON FUNDS:

"What we're finding is that funds that have risen very smoothly are then... falling away quite sharply and there's a number of funds of funds and credit funds where they're still going through that process. You don't need to be a Ponzi fund to have that kind of effect."

ON DIVIDENDS:

"Dividends are going to be reset, once it become fashionable to do that, more will do it. And this is different from previous cycles.

"A lot of companies misunderstand that (dividends), if you look at insurers, they maintained the dividend. I think that investors will look at stability where investors are looking for assurance on capital adequacy."

ON BANK RECAPITALISATION:

"I do expect further recapitalisation on banks. I don't think we've yet had clear statement from governments around the world about what a level of capital in banks will be supported.

"Investors would still feel apprehensive that equity in banks just turns in to warrants without any real certainity over income."

DAVID GIAMPAOLO, CHIEF EXECUTIVE OF PI CAPITAL

ON INVESTOR LOSSES:

"The average Pi member's net worth is somewhere between 30 and 50 percent less today than it was a year ago. That would give any normal person good reason to pause."

"On top of that, it isn't as though this wealth destruction was a one-off event... we're in it still.

"We don't know if we're in phase 1, 2, 3, 4. But the best minds that I have access to, would say - the most ambitious prospects I hear - is that we're maybe half-way through.

ON PERFORMANCE:

"I did have a dinner last night where a couple of people who said their February performance was no less bad than their January or December. Now, is that good news or bad news? I'm not sure. December was horrible. All they were saying is that they haven't had further deterioration. But they've still had consistent deterioration.

ON INVESTMENT OPPORTUNITIES:

"A lot of companies I'm looking at are stressed, but not distressed yet. I haven't seen that much in any sector (recently) that I wish to transact on. There are one or two opportunites, if there wasn't such a big pricing gap, I think we would transact on. (We're waiting for prices to fall) I mean, another 20 to 30 percent, not another 5 to 10 percent."

ON VALUATIONS

"Even if your trading prospects are less promising, you're not going to sell your business today, because you're going to get absolutely creamed on valuation."

ON INVESTOR CONCERNS:

"These aren't funds in which investors aren't worried about not getting a return on capital. They would do anything to get the return of their capital."

"One of the concerns out there, amongst some of the big limited partners (LP), is carry (performance fees) has played a huge role for many firms and partners.

"If you're under water in your fund and you've invested 40 or 50 percent of your fund, the only chance to get the general partners (GP) to carry, (is for) the next couple of deals need to be absolute blockbusters.

"Guess what, if you want to make an absolute blockbuster, you have to take absolute risk. The LPs are worried that the GPs are going to swing for the trees, because they have nothing to lose. They have no carry coming anyway... It's not a pretty picture."

"They complain about the fees more than they complain about the carry... If you're paying out carry, it means you're in the money. It's totally about the return of capital as opposed to the return on capital."

ON IMPACT OF FINANCIAL CRISIS ON LIFESTYLE:

"When they walk out of Louis Vuitton, it's about putting what they purchased in a Tesco bag. Conspicious consumption is dead, it's a turn off. If your best friends have just lost their family fortune, it's not in good taste. (Compiled by Lorraine Turner; editing by Simon Jessop)