Theo O'Brien

Still Years Away from Private Equity's Triumphant Return

There seems to be a fascination with announcing the return of private equity, fueled by the vague hope that the prediction will come true. While we are seeing positive signs for private equity, a "comeback" is not going to be instantaneous nor will it be a reproduction of the heyday of a few years ago. I think your analysis is pretty on-target. I'd just like to add that the excitement over the $400 billion pool of capital should be considered with the FT's findings that private equity firms owe roughly the same amount.

"The biggest private equity groups face more than $21 billion of debt maturities in the next two years, the newspaper said, citing data from S&P LCD. To that must be added a further $50 billion in 2012, $115 billion in 2013 and $192 billion in 2014."

This puts an interesting dilemma for private equity firms who have that debt hanging over their heads: Do we try to keep the traditional leverage ratio, or use primarily equity in future deals? Now very few banks will be willing to help leverage the deals but if the PE firms are paying back the debt then there is less cash available to correct the ratio.

--Theo O'Brien
PrivateEquityBlogger.com

Change on the Horizon for Alternative Asset Management Industry

Great article,

In regards to hedge funds, I share your assessment and the management fee structure inspires managers to take risk with no structural restraint by their investors.

As for private equity, I'm not sure so much of the blame really falls on the private equity firms for not focusing more capital into smaller deals. I think a different problem has really been hurting private equity: more often in recent years there has been less nurturing of the investment at the large investment level. It has been more of a focus on making rapid deals rather than reaching the potential of the companies already invested in. That strategy has met with resistance from the market and explains a lot of the poor returns for private equity investments, in this way I agree that private equity firms will return to the basics and re-learn their industry by making fewer deals but ensuring greater success in those investments.

Private Equity to the Rescue of Banks?

Interesting article, I've been hearing a lot about this potential rescue by private equity firms but frankly I just don't see it happening. I do believe that private equity will play a major role in recovering AFTER the banks hit bottom. It seems that there is still a lot of fallout remaining and the private equity industry probably sees that. If anything, a few private equity groups will be unable to restrain themselves and buy some big shares in a few banks now that the SEC has relaxed some rules that previously restricted a private equity firm's purchase in a bank to under 25%. But overall I think this one is up to the Fed.