Buh Bye Private Equity
See you later "exit opps" - CDX puked its guts out AGAIN. No one is buying the PE cov-lite garbage debt anymore. Say goodbye to your M&A deal flow.
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Soon it will be time to hit up the old boys network once again.
I heard that there is going to be some kind of extra tax on PE starting next year and that PE is going to shits. I don't understand, any suggestions on what specific sources to look into to get a better understanding of what is going on?
wsj, any news website, any business magazine, the topic is impossible to avoid
So if PE is drying out, then what else is there (in terms of exit opps)? Corporate development and HFs don't really interest me...
God forbid people will have to stay in banking...
ok this is absolute crap. PE shops have HUGE funds, which are already raised, so the only two options they have is to invest it or sit on it. And I guarantee you the latter is hardly an option for them. PE ain't going anywhere, and even though I have 0 interest in it, it needs to stay for banking's sake as well.
That's not actually correct. If a PE general partner closes a fund, it doesn't mean they have all the cash in hand ready to be invested. All they have are capital call commitments from their limited partner pension funds.
View the LP agreements like revolving credit facility agreements, but in this case it's a committed revolving cash/equity facility from the limited partner to do deals. The pension funds only release their committed capital once the GP is ready to close a deal.
So while KKR/Blackstone await their capital calls, the commercial banks provide the bridge financing till the pension funds come through.
So unlike the more liquid hedge funds that sit on invested cash and have the flexibility to park their raised funds in U.S. treasuries, private equity funds do not have this ready liquidity from their GP investors, (unless they have a separate hedge fund vehicle like Blackstone's hedge fund unit which invests in securities and distressed situations).
That's why this credit crunch is hurting financial stocks because bridge loans for "pending fund capital committments", and junk debt are just sitting on the banks balance sheet till the credit markets lighten up & the pension funds come through. So the risk lies on the banks credit arm.
IMHO, the banks are too highly levered, and if something goes wrong, this would trickle down first into the credit markets, then financial stocks, and here goes the next restructuring boom when market interest rates rise.
If you haven't already, I'd short the major commercial banks (JPM,Citi,DB, etc..) but you're probably late in the game.. short interest on these stocks are probably too high by now.
if this subprime blows up and we go into a recession, wouldn't the feds lower the interest rate making debt very cheap and PE's getting back on track(just curious, prove me wrong with another theory)? I mean if we don't go into a recession and the interest rates keep going up, then i dont know???
but i also agree with salam that they have HUGE funds already raised so they will keep investing the money.
don't forget - PE is like physics, for every transaction there is an equal (or larger) and opposite transaction. All these newly private companies are going to need to be resold or made public again, and the banks will most certainly be in on that action.
Remember that no matter what flavour the boom is, the banks make money.
Banking lifestyle sucks for many years, but your job is relatively stable and predictable compared to the more cyclical, flavour-of-the-year exit opportunities that analysts see.
^ nice post.
I for one, think the PE 'correction' is coming and coming soon. Too much cheap credit, too much cash on hand and deals that need to be done to jusitify the capital raised, and an economy which has been hot for too long (in that area)
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