Over half of private equity leaders are confident that the full recovery of the market is no more than 18 months away, new research commissioned by Celerant Consulting reveals.

A survey of more than 220 senior executives across Europe and the United States, carried out by the Economist Intelligence Unit, reveals that 53% of private equity leaders believe that the market will return to its pre-credit crunch levels within 18 months. The findings showed that US executives are more optimistic about the future than their European counterparts, with 62% of US respondents believing that a turnaround would occur within that time frame. As noted, the global sentiment was a bit more pessimistic, with 36% of UK and 32% of German respondents predicting a full recovery would take longer.

Paul de Janosi, Managing Director of Private Equity, Celerant Consulting, said: "Despite the optimistic viewpoint of a majority of the survey respondents, we feel that it will be a few years before we see pre-credit crunch levels of activity again. We expect the roots of early recovery to begin in the second half of 2009, leading to broader activity by mid-2010. The GP's will not be static though, as there is significant amount of portfolio remediation work and this type of market down-turn typically yields strong buying opportunities."

Yet to hit rock bottom?

Despite the long-term optimism, many of those questioned still felt that the market has further to fall. The vast majority believe both the volume and value of deals will reduce over the next year (78% and 81% respectively), whilst two thirds (66%) say they intend not to invest at the moment and would instead wait for more attractive deals.

Change is necessary, but how?

The survey also found that private equity leaders from around the globe are united in the belief that the credit crunch and subsequent recession will transform the industry, with 96% agreeing that PE firms will have to change. However, there is no consensus on what the sector will look like when the credit crunch has passed, highlighted by the fact that 16% acknowledge that there will be a need to change but they are not sure how.

One fifth thought that the industry would need to find a completely different financing model - unsurprising given that the reduced levels of available credit in the marketplace means that the days of massive leveraging are a thing of the past. Almost as many, 19% globally and 29% US, expect the credit crunch to lead to consolidation within the private equity sector itself.

What to do in the meantime?

Nevertheless, despite acknowledging the need for change, only 20% are planning to scale back activity in the next 12 months, and a mere 2% intend to shed jobs. Rather, the optimistic long-term prognosis is illustrated by the fact that 26% of those questioned are prepared to take on new staff.

Paul de Janosi continued: "The credit crunch means that easy refinancing is a thing of the past, yet the private equity industry is still optimistic about the future. In the short term private equity companies have already begun to shift their focus from investment to improvement. They need to concentrate on their existing portfolios to ensure that they are both maximising their operational efficiency for short-term survival, and guaranteeing long-term growth."