Henry Kravis, co-founder of the legendary private equity firm Kohlberg Kravis Roberts, says private equity will come back from the hit it has taken during the financial crisis.
“It’s not dead at all, but it will take different forms,” he tells Forbes.
“Private equity is a fancy term that was invented for something that has existed way before KKR was founded in 1976. We made it into a business.”
Kravis compares the current economic environment to 1979. Back then, “the U.S. economy was in terrible shape,” he says. “Inflation was at 13 percent, unemployment at 11 percent and thanks to credit curbs, there was zero financing available.”
And then, of course, came the explosion of private equity in the 1980s and ’90s.
“Today we don’t have inflation, and there’s some capital available,” Kravis says.
“But the current crisis happened so fast, it’s as though someone suddenly shut the lights off. In my experience, the best returns come out of a downturn.”
Kravis is cautiously optimistic at the moment. “We’re seeing a few positive rays of sunshine in the U.S. and a few markets around the world,” he says.
Bottom line: “We’re waiting and watching right now,” Kravis says.
Colin Blaydon, director of the Center for Private Equity and Entrepreneurship at Dartmouth, writes in The New York Times that large firms like KKR will operate “with more transparency and consequently with long-run return expectations, more like traditional asset management firms.”
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