Paul Danos (that’s him below) has seen a range of boom-and-bust cycles in his 12 years at the helm of Dartmouth College’s Tuck School of Business. The summer’s credit crunch threatens to mark the end of the latest boom, that enjoyed by the private-equity industry. Tuck also is home to the Center for Private Equity and Entrepreneurship. As such, Danos is particularly well situated to opine on how the private-equity industry might adapt to the changing credit environment and the prospects of M.B.A. students striving to enter the private-equity arena.
Deal Journal colleague Ron Alsop spoke with Danos for this column in today’s Wall Street Journal. Here is more of that interview:
Alsop: Do you think the summer’s credit crunch
marked a top for the private-equity industry? If so, is it changing how
Tuck prepares M.B.A. students seeking private-equity positions?
Danos: Close to 50% of Tuck students have a serious interest in finance and most of them go into investment-banking firms and corporate finance, but perhaps about 15% have their hearts set on private equity, which could include hedge funds, buyout firms and venture-capital firms. The most recent disruptions in financial markets, especially the credit crunch, will deflate the demand in buyout area first, somewhat, and, to a lesser extent, in some of the investment banking. Certainly the huge write-downs by the large banks will give them pause as they plan their recruiting year, but I am cautiously optimistic that when the smoke clears our students will do very well in most of those markets. We have found that most firms want to continue to bring in the best M.B.A. students even during in a downturn.
RA: What aspect of private equity is most in the spotlight at Tuck’s center?
Danos: I would say that the students who are interested in private equity are most interested in the participating in the buyout of public firms, which of course is an area that will be damped by the credit crisis. Also, they are very interested in merges and acquisitions in general. That activity will continue to occur among corporations for strategic reasons even as the “going private” trend cool off for a while.
PD: Any other comments on the credit and PE situation and outlook?
Danos: My guess is that the private-equity firms after a period of cool down will find ways to do their deals. After all, much of the trouble didn’t come from the huge buyout deals going sour but from a specific bubble surrounding some very risky leading practices and the financial instruments that were created for those mortgages. The reasons for “going private” are compelling in many cases and, even in tighter credit markets, many of those potential deals are still attractive and sound. I predict that hedge funds and buyout firms will be alive and kicking far into the future and, I would add, doing good for our financial markets. Of course, the government could hurt their prospects with ill-considered regulations, but even that is not that likely, in my opinion.