TPG Founder Sees Europe Resolving Crisis Amid Risk of Disaster

Europe’s political leaders will probably resolve the debt crisis amid the risk that the situation could “blow up,” said David Bonderman, co-founder of private-equity firm TPG Capital.

“The odds are that Europe will figure out a solution, but there is potential for imminent and short-term disaster,” Bonderman said today at the SuperReturn Emerging Markets conference in Geneva. “You have to price in event risk.”

Europe’s leaders meet in Brussels today as German Chancellor Angela Merkel rejects calls to do more to cut the borrowing costs of Spain and Italy. Merkel is increasingly isolated as French President Francois Hollande, Italian Prime Minister Mario Monti and Spanish Premier Mariano Rajoy unite to push for quicker action to ease the crisis that emerged in Greece in late 2009.

While the crisis poses the greatest macro challenge to buyout firms such as Fort Worth, Texas-based TPG, Bonderman said there is limited opportunity to take advantage of Europe’s woes as governments are unwilling to force asset sales.

“Governments have been reluctant to actually push banks to mark things to market,” he said. “The result is there are fewer assets coming out than you would have expected.”

Private-equity transactions declined 41 percent to $53.7 billion in the first quarter, according to data compiled by Bloomberg. TPG, founded in 1992, has about $51.5 billion of capital under management, according to the firm’s website.

Adjusting Expectations

The two most attractive private-equity markets are the U.S., which has the most liquidity and where “pricing is not unreasonable,” and high-growth emerging Asia, said Bonderman. Most African markets are small and can be hard to exit, he said.

Raising capital is the “dominating factor” at a micro level, said Bonderman, adding that investors must adjust their expectations to the zero-interest-rate environment.

“People have to ask themselves in the current environment whether private equity can continue to return 20 percent?” he said. “If this continues for a long period of time, the answer has to be no. In fact, people ought to be happy with 12 percent.”

To contact the reporter on this story: Dylan Griffiths in Geneva at dgriffiths1@bloomberg.net

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net