Wharton Journal

Issue date: 1/31/05 Section: News

The Eleventh Annual Wharton Private Equity Conference theme of "Cracking the Code" could not have been more appropriate as over 840 attendees, including more than 500 industry professionals, descended upon Philadelphia to share perspectives on emerging issues in private equity. Critical debates ensued, as keynote speakers promoted adding value through operations and avoiding sectors that are subject to overinvestment. "What the wise do at the beginning, fools do at the end," cautioned Howard Marks W'67 during his lunch keynote. Although the speakers may have aired differing opinions on how exactly to "Crack the Code" and deliver outsized returns, all participants were in agreement that the conference was a success and has set professional standard for student initiated conferences.

The event was not only the largest student-organized conference ever hosted by Wharton, it was also the largest business school conference dedicated to private equity and venture capital. The conference planning committee assembled an impressive list of keynote speakers including Glenn Hutchins, co-founder and Managing Director of Silver Lake Partners, Howard Marks W'67, co-founder and Chairman of Oaktree Capital Management, and Andreas Beroutsos, co-founder and Partner in McKinsey & Company's private equity practice.

The Grand Ballroom at the Park Hyatt swelled with students and industry professionals anxiously awaiting the morning keynote addresses. After a warm welcome from Prof. Stephen Sammut, who was affectionately introduced as the "spiritual leader of private equity at Wharton," Andreas Beroutsos took the stage to discuss the state of the buyout landscape. As the director of McKinsey & Company's private equity practice, Beroutsos stressed the importance of proper due diligence and active ownership. General Partners achieve forecasted growth on only 30% of transactions, and Beroutsos highlighted that many investments fizzle within one year of the acquisition. As a result, fund managers should be just as concerned with avoiding the "dogs" as they are with looking for the "stars." Beroutsos also emphasized the importance of focusing attention on the acquired company during the period immediately following the close of the transaction. Despite his warnings to industry professionals in attendance, he did express a favorable outlook for the coming years as deal sizes increase and the excess capital chasing investments diminishes.

Following Beroutsos, came the morning keynote delivered byGlenn Hutchins. A veteran of TH Lee and Blackstone, Hutchins founded one of the most innovative buyout firms in recent years. His firm, Silver Lake Partners, pioneered LBOs in the technology sector with landmark deals such as Seagate, Ameritrade, Gardner and Datek. Hutchins set the tone for the day by calling into question the traditional LBO model that had been successful for so many years. He referred to his firm not just as a financial investor, but as a "problem-seeking missile," a seeker of corporate challenges it knows it can fix. As the industry faces challenges due to globalization and competition from hedge funds, he stressed the importance of fund managers adding tangible value to portfolio companies. "Most [PE firms] have no clue about how to do business development and strategic planning, how to multiply or acquire customers or how to get involved in corporate communications - not just around Wall Street, but around the industry and the trade press," commented Hutchins. He added, "We go into each investment bid with a value-added skill-set that we can deploy." Hutchins introduced a number of themes that echoed throughout the course of the day such as the value of investing in healthy industries, leveraging strong management teams and sourcing non-traditional deals.

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