The heads of some of the world's largest private equity firms said on Tuesday the industry is recovering from the financial crisis with portfolios in better shape, financing reappearing and M&A expected to pick up.
Headwinds remain as controversial regulation reform makes its way through Washington, but a tougher environment does not mean they cannot make money, the bosses said.
"When things are hard, it separates the wheat from the chaff," said David Bonderman, who leads the immense TPG Capital, which has investments in such companies as TXU Corp, now Energy Future Holdings Corp.
"At the height of 2007, your grandmother could have done an LBO (leveraged buyout) by calling up a too-big-to-fail bank and getting a loan with no covenants."
Addressing a crowded auditorium of investors and business executives at the Milken Institute Global Conference, Bonderman added that reform of the markets "isn't going to be a bad thing for the people in this room. We've all learned how to operate in difficult environments."
The financial system meltdown halted the ability of buyout firms to strike leveraged deals and put a strain on debt-laden portfolio companies. In the past months, they have returned to the market to buy companies and exit some of their investments by taking them public or selling them to rivals.
"What a difference a year makes," said Leon Black, head of Apollo Management, which has worked alongside TPG, investing together in gaming company Harrah's Entertainment Inc.
"Our portfolio seems to be in much better shape. The world is off the edge of the precipice, our (investors) are still talking to us and I'm glad I'm not Goldman Sachs today."
Goldman Sachs Group Inc executives were trying on Tuesday to fend off accusations during a high stakes Senate hearing that they inflated the housing bubble and made billions from the market's collapse.
Bonderman, who appears somewhat rarely at industry conferences, echoed Black's sentiment.
"A year has made an awful lot of difference whether looking at the performance of portfolio companies, or the fact that leverage is back in a significant way at least for good companies and the bond market is white hot," Bonderman said.
Scott Sperling, co-president at THL Partners, which has investments in companies such as Clear Channel Communications, pointed to the increased ability for companies to borrow for new deals.
"The high-yield market is probably better today than it ever has been, the bank market is returning to some level of normalcy," Sperling said. "Today we believe that the mid-to-large buyout sector is poised for a return to volume, not to anywhere near the peak of the (beginning) of 2007, but more normalized levels."
Uncertainty over regulation is a concern. Sperling said he would "beware of businesses that the government touches in a way which can impact their business model."
Financial services executives at the conference have been apprehensively watching regulation reform make its way through Washington, worried measures such as a bailout fund and restrictions on derivatives would hurt business.
Black pointed out that the private equity industry itself has remained "fairly much (at the) low end of the totem pole" in terms of having regulation thrust upon it, which he argued was due to the industry having a positive impact on the economy and jobs.
Bonderman had a relatively sanguine view of the wider impact of regulation, saying he thought "the risk of what the government is doing is in a general sense overstated.
"Difficult regulatory environments, different political environments or difficulty overall does not necessarily make for bad investment times," he added.