http://online.wsj.com/article/SB10001424052970204…
I have a problem with this article. It sounds like Zuckerman is sensationalizing the fact that PE is not immune to a business cycle. He takes the facts that deals can't get done at pre-recession leverage levels and prices (yeah no shit asshole) and makes the resulting decline in profitability out to be a secular trend. That's the kind of shit my girlfriend tries to pull, if you follow my logic.
Times change, there will always be ebb and flow. I'm reading a great book right now called "King of Capital" about Steve Schwartzman and Blackstone. Its a great read and gives a great history of the buyout business. Looking at the margins from back in the day to now, at least in equity infusion, is a lot different. Doesn't mean its bad, just mean things change.
So whats your issue with the article? its merely an observation of fact
There are facts in the article: Funds have money that needs to be put to work and the debt markets aren't there right now so they're paying higher multiples on less leverage. As a result sponsors are branching into different assets. But don't you see that as kind of a cyclical phenomenon? Don't you think when things come around PE will turn back to the buyout? I just want to hear others' views.
equity contributions may have spiked in the past couple years due (at least in part) to the recess in clos taking down large chunks of debt in these deals, but the same vehicles inflated leverage pre 08 and i don't see equity contributions dipping lower than mid-to-high 30s any time soon. as debt got more expensive towards the end of the year last year, it meant the deals that got done were higher quality. when funds have record levels of dry powder and need to put it to work. they may seek other assets and that is to be expected. i agree with the cyclicality argument, and would expect a wave of repricings followed by a wave of recap/dividends followed by increased lbo volume followed by lower equity contributions once the market heats back up (similar to early 2011). when the market heats back up? that's another question. funds are adapting, not becoming extinct. they have and will continue to serve a very important role.
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