One way to get a read on the intent of money managers in the slowly improving economy is to watch the private equity industry. Executives in the private equity industry invest funds in traditional firms and may also take 745925_logging_in_bcstruggling public companies private in order to streamline business operations. Like many other industries, the private equity sector suffered during the recession. A new study from BDO Seidman, LLP indicates that over half of private equity companies report poor performance by about 20% of their portfolio through the 3rd quarter of 2009.

To improve portfolio performance, managers have taken the following steps:

  • Headcount reduction 93%
  • Debt renegotiation 81%
  • Market strategy reassessment 83%
  • Declared bankruptcy for one or more companies 28%
  • Hired a turnaround professional 38%

The good news is that these managers see a brighter horizon for 2010.  Only 4 in 10 managers believe they’ll need to reduce headcount at their operating companies. Further, executives participating in the study say they plan to increase investments in 2010.  Top opportunities seen for investment include:

  • Healthcare 35%
  • Manufacturing 21%
  • Natural resources 17%
  • Financial services 12%
  • Technology 10%

The results of the BDO Seidman, LLP study emphasize that many in this industry “believe that the worst is now behind them and remain committed to their primary investment strategies.” Though BDO Seidman analysts caution that deal flow will not return to its previously high volumes until at least 2011, all signals are pointing in the right direction. As private equity industry executives invest in new ventures and eventually improve the financial performance of their operating companies, they will also need to increase marketing and advertising programs to reach new customers.

[Source: Private Equity Survey, BDO Seidman, 10.26.09]