(Bloomberg) -- The private equity industry is facing a reckoning — with borrowing costs high, valuations for portfolio companies falling, and investors getting more demanding. But as far as Permira’s top boss is concerned, things are pretty good.

“It’s always when it feels most uncomfortable in our industry that the best risk-reward is created,” Permira managing partner Kurt Björklund said in a recent interview. A more difficult fundraising market and higher interest rates mean “the less performing teams get shaken out and disappear from the market,” he added.

Permira, which has about €80 billion ($86 billion) of committed capital across its buyout, growth equity and credit funds, said this year it will start a climate strategy to invest in companies related to the energy transition. It completed a €16.7 billion fundraising for its latest flagship fund in 2023, giving it fresh ammunition for deals.

While Björklund — who has led the firm solo since 2021, and as co-managing partner since 2008 — is confident, there’s no doubt that private equity deals are becoming more difficult to pull off. The market for initial public offerings is still on shaky ground after a steep slump, and selling assets to other financial sponsors or corporate buyers is more difficult with interest rates high.

It all means that the debt-fueled industry is finding it harder to monetize holdings and return cash to investors. That’s leaving less money to deploy into new funds — and is even putting pressure on private equity executives to put their own skin in the game.

Read: Show Us Your Money, Investors Tell the Titans of Private Equity

“If you own an A-plus growing asset with strong market position that is compounding and the profits are continuing to compound, you can sell it” at a good price, Björklund said. But it’s not even worth trying to sell low-growth, cyclical and capital-intensive businesses that aren’t market leaders, he said.

This month, Permira agreed to sell a majority stake in Universidad Europea, a network of higher education campuses across Europe, to EQT AB. It also recently sold a stake in fund administration company Alter Domus to Cinven. Among new investments, Permira — along with Blackstone Inc. — last year agreed to purchase Adevinta in a deal valuing the classifieds company at about €14 billion including debt. It plans to list luxury Italian shoemaker Golden Goose in Milan this year.

Dealmaking challenges aside, a more competitive fundraising environment is also prompting some private equity firms to become so-called multi-asset platforms, offering investors everything from infrastructure and real estate to private equity secondaries.

This strategy is particularly being pursued by firms seeking public listings, including CVC Capital Partners. The firm is set to start trading in Amsterdam on Friday after a long-anticipated initial public offering.

Permira, however, is shying away from that route.

“Our chosen path is one of being a deep specialist rather than a platform builder,” Björklund said. While listed investment firms need to keep expanding into new areas to expand their management fee bases, Permira wants to avoid the distraction of that driver.

“As a partnership model, we believe that we will, in the long run, have an advantage in talent acquisition, talent development and retention.”

(Adds comments on talent acquisition in final paragraph.)

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