Permira chief sees potential for exceptional PE returns as valuations fall

Private equity investors could achieve some of their strongest returns by deploying capital in the current market, with lower valuations and reduced competition creating attractive entry points, according to a report by the Financial Times citing comments from Dipan Patel, co-chief executive of Permira.

Speaking at the FT Private Capital Summit in London, Patel said the current environment offered parallels with the periods following the dotcom crash and the global financial crisis, which produced some of the industry’s most successful investments.

Permira manages approximately €100bn in assets. Patel argued that higher interest rates, while challenging for existing portfolio companies and sellers, could benefit buyers by bringing acquisition prices down to more attractive levels.

The private equity industry has faced a prolonged slowdown in exits, with subdued IPO activity and elevated borrowing costs making it harder for firms to sell assets at their targeted valuations. Many investors acquired businesses during the era of ultra-low interest rates and have been reluctant to accept lower prices, constraining distributions to institutional investors and limiting their ability to recycle capital into new funds.

Artificial intelligence is reshaping investment strategies, particularly in software, a sector that has historically attracted substantial private equity investment. Uncertainty over the impact of AI agents on established business models brought software dealmaking to a near standstill earlier this year.

Patel said software had shifted from being overcapitalised to undercapitalised from an equity perspective. Permira, which had previously allocated as much as 30% of its investment activity to the sector, had not completed a software deal in the three years following the launch of ChatGPT, he said.

However, Patel warned against assuming other industries would be shielded from technological disruption. With investors concentrating capital in sectors perceived to be less exposed to AI, competition for suitable assets could intensify.