The private equity industry is still in its “early innings” and has decades more to run as a high-return business model, said Bain Capital senior adviser Stephen Pagliuca.
“The private equity model works,” he said in a Bloomberg TV interview at the World Economic Forum in Davos on Wednesday. “It puts capital to work with experts that really help drive these companies.”
Pagliuca said private equity has “absolutely not” peaked and will still be able to deliver the standard 18% to 20% rate of return in the coming decades.
“We’ve maintained those returns now every decade for 40 years,” he said. “It’s a great business model.”
Buyout firms are readjusting to an environment of higher interest rates that’s making it harder to finance deals and juice returns by loading companies with cheap debt. Valuations have tumbled in both the public and private markets.
Rising rates are bringing a reckoning for those firms that invested heavily in speculative technology companies at super-high multiples, according to Pagliuca. Bain has largely steered clear of this market and its portfolio is doing “pretty well,” he said.
“The United States has low unemployment,” Pagliuca said. “People are spending money. So we’re not seeing a diminution.”
Pagliuca this month announced his retirement as co-chairman of Bain Capital after more than 30 years with the $160 billion private equity investor. He’ll remain a senior adviser at the firm.
In a separate panel at Davos earlier on Wednesday, Pagliuca said there was opportunity invest in Japan as the country was moving in the right direction by opening up to foreign investors.
“Japan’s a fantastic market because they are now embracing capitalism,” Pagliuca said on Bloomberg TV. “They love the value-added approach.”
This article was provided by Bloomberg News.