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EDITOR'S LETTER(2)

The quiet before another storm

Questions about private equity fund economics and the industry's alleged lack of transparency have lost their urgency – for now.

Flick through a financial newspaper today, pretty much any will do, and one thing you might notice is this: coverage of private equity is suddenly conspicuous by its absence. It hasn't completely disappeared, but the drop-off is nevertheless striking: until a few weeks ago, the industry dominated headlines in many markets around the world.

No prizes for guessing what's brought this change about: journalists everywhere are severely distracted by the credit crunch. Now that the crisis is officially worse than the Asian and Russian disasters in the 1990s (US treasury secretary Hank Paulson declared it to be so in mid-September), questions about private equity fund economics and the industry's alleged lack of transparency have lost their urgency.

Not that private equity is somehow disconnected from the turmoil in the markets – far from it – but more immediately pressing things are currently on people's minds. Hence the relative peace and quiet for the industry in the media right now. Practitioners should enjoy it while it lasts.

Chances are it won't. With leveraged loans worth hundreds of billions of dollars still sitting on the arranging banks' balance sheets, private equity firms are among the counterparties contributing directly to the banks' woes. This may not be the biggest fire the banks are having to put out right now, but it will become a talking point once again as soon as the meltdowns relating to mortgages have been brought under something beginning to look like control.

Another massive cloud on the private equity horizon is the prospect of a large leveraged buyout blowing up and the sponsor(s) being identified as the culprit for having overgeared the asset in the first place. This may of course never happen, but if it does, the chorus of critics demanding regulatory constraints for financial sponsors will be very audible indeed.

Then there is the political issue of private equity and quasi-private equity investors such as sovereign wealth funds changing the make-up of national economies. This too is already on the list of issues fund managers need to deal with, but again: a lot of people are too distracted to make it a priority right now. Once the debt markets settle down, protectionism could become a threat for private equity in many markets – especially in Asia.

Whichever way you look at it: the coming months will be no picnic for private equity. It might not be long before newspapers read over breakfast will once again be delivering big helpings of food for thought about the industry's future. The relative absence of private equity bashing at the moment might be pleasant, but this is not a time for complacency on the PR front.

Enjoy the issue,

Philip Borel