LSBF Great Minds Live: ‘Private equity’s biggest challenge is its own success’, says Terra Firma founder Guy Hands

The growth of private equity markets in the last two decades has made its very success its biggest challenge, believes Guy Hands, Chairman and Founder of one of Europe’s leading private equity firms, Terra Firma.

Speaking to an audience of business students in Central London for the London School of Business and Finance’s (LSBF) Great Minds series, he stated that the private equity industry has grown enormously and, owing to increased competition in the market, its high levels of success pose a great challenge for firms.

“Private equity firms tend to start small but, as they grow in size, competitiveness [in the private equity market] has increased while the margins have decreased,” he said. “Twenty years ago, working with or in big firms, cost effectiveness and mergers and acquisitions alone could lead you to outperform stock markets; this is no longer the case.”

Reflecting on what has steered Terra Firma’s success in this competitive market, Mr Hands noted that being different with the aim of transforming a business is what drives success. “Making money today is about understanding where the market is headed.”

“How will you provide, through your investments, more than what others in the market already provide? That is the question. Creating value with innovation and strategy is vital,” he added.

In just over two decades since founding Terra Firma in 1994, Mr Hands has overseen the firm invest over €15 billion in 33 businesses with an aggregate enterprise value of over €48 billion. The firm’s growth is driven by its approach to business, which has been to raise long-term capital from a wide range of investors to buy and transform businesses in order to create value for stakeholders.

Mr Hands’ career has seen him pioneer the markets of global securitisation, by innovating to expand processes to include debt instruments and assets such as mobile homes, shopping centres and distressed loans.

Addressing the role of leadership in his success, Mr Hands emphasised the importance of motivating colleagues to aim higher, and achieve greater heights, as a key element of his approach to management. ”I aim to inspire, energise and challenge,” he said.

Mr Hands also underlined the significant role London does, and can continue to, play in the business world, through its global standing and its ability to nurture talent. “London can continue to grow, becoming the heart of trading for all emerging markets. Catering to a global market with an international outlook would help foster great economic growth,” he noted.

Advising students to aim to be entrepreneurial, Mr Hands said, “Aspire to be entrepreneurial; innovate and build businesses. If you have that mindset, you will go on to create a better world through your business and the jobs [you will create].”

Mr Hands spoke in London at LSBF Great Minds Live, an interactive event initiative where students have the unique opportunity to listen to, and discuss with, illustrious business and political leaders on a vast array of topics ranging from education and careers to business and entrepreneurship.

LSBF Great Minds Series

As well as offering programmes dedicated to fostering leadership skills, LSBF also endeavours to provide students with insight and inspiration through a number of innovative resources. One of these initiatives is the LSBF Great Minds Series: a collection of video interviews with leading business and political leaders promoting debate on education, employability, entrepreneurship and the economy.

The video series started in 2011 with a conversation with former British Prime Minister Tony Blair, followed by an interview with former Education Secretary Lord Kenneth Baker. In 2012, entrepreneur Sir Richard Branson, founder and chairman of the Virgin Group said that universities worldwide should become hubs to boost entrepreneurship and inspire self-starters to develop their own businesses. In 2014, LSBF spoke to Will Butler-Adams from Brompton Bicycle, Guy Hayward-Cole from Nomura Bank International, with former British Prime Minister Sir John Major, entrepreneur and investor Deborah Meaden, Google UK sales director Kevin Mathers and BBC Worldwide CEO Tim Davie.

Kicking off 2015, LSBF hosted interviews with Andrew Miller, CEO of Guardian Media Group; Jill McDonald, CEO of McDonald's UK; Kevin Costello, CEO of Haymarket Group; Amy McPherson, CEO of Marriott Hotels Europe; veteran BAFTA-winning broadcaster Jon Snow; live chats with Kevin Ellis, Managing Partner of PricewaterhouseCoopers, Claudine Collins, Managing Director of MediaCom UK, and Robert West, Partner at Baker & McKenzie; Mark Wood, CEO of JLT Employee Benefits; and, most recently, Tom Cijffers, MD of Zenith UK.