More Signs of Private Equity Market Frenzy: Firms Selling Stakes

[vc_row][vc_column][tm_heading tag=”h5″ custom_google_font=”” font_weight=”600″ text=”As an insider once told me, the most important skill that private equity firms possess, aside from their ability to hide their sociopathic tendencies, is their finely-honed sense of when to sell.” line_height=”1.4″][tm_spacer size=”lg:25″][tm_heading tag=”div” custom_google_font=”” text=”A Wall Street Journal report today is therefore a strong indicator that the private equity is at or near a market peak. In Private Equity Bubble? What Private Equity Bubble? the Journal describes how firms are selling ownership stakes. Recall that the last time that happened was in 2007. Blackstone launched its IPO just before the crisis. KKR filed for an offering in 2007 but missed the window.”][tm_spacer size=”lg:63″][vc_row_inner][vc_column_inner width=”3/12″][tm_image image=”875″][tm_spacer size=”sm:30″][/vc_column_inner][vc_column_inner width=”9/12″][tm_heading tag=”h5″ custom_google_font=”” font_weight=”600″ text=”Use psychological pricing methods.” line_height=”1.4″][tm_spacer size=”lg:23″][tm_heading tag=”div” custom_google_font=”” text=”The amusing part of the story is the effort of the parties who have acquired interests in private equity firms recently, are keen to do so, or are otherwise allies of general partners to depict these firms as great buys. These purchases are taking place when the private equity industry has been paying nosebleed prices for deals for two years and central banks are looking to end their massive monetary stimulus. “][tm_spacer size=”xs:30;lg:35″][tm_heading tag=”div” custom_google_font=”” text=”Even the ECB, which was a believer in super low and negative interest rates after the Fed recognized that its QE experiment hadn’t worked out as it had expected, is now looking to unwind QE, then raise rates.”][/vc_column_inner][/vc_row_inner][tm_spacer size=”xs:30;lg:52″][tm_heading tag=”div” custom_google_font=”” text=”Thus the tremendous central bank tailwind to asset prices is not only stopping but is going to start turning in the opposite direction. Even though any tightening is sure to be administered slowly and with great caution, a central bank regime change is unfriendly to risky investments like private equity.”][tm_spacer size=”xs:30;lg:68″][vc_row_inner][vc_column_inner offset=”vc_col-md-6″][tm_heading tag=”h5″ custom_google_font=”” font_weight=”600″ text=”Demonstrate the differences” line_height=”1.4″][tm_spacer size=”lg:23″][tm_heading tag=”div” custom_google_font=”” text=”The boosters also tout private equity’s supposedly illustrious returns, which as we’ve written repeatedly, are in fact exaggerated. Private equity firms use IRR, which is a misleading metric. For the last decade, private equity has regularly underperformed public equities on a risk-adjusted basis.”][tm_spacer size=”sm:30;lg:68″][tm_heading tag=”h5″ custom_google_font=”” font_weight=”600″ text=”Offer a money-back guarantee” line_height=”1.4″][tm_spacer size=”lg:23″][tm_heading tag=”div” custom_google_font=”” text=”Moreover, the story depicts the entry of sovereign wealth funds and family offices as direct private equity investors as a plus for private equity, when that is a negative.”][tm_spacer size=”sm:30;lg:68″][tm_heading tag=”h5″ custom_google_font=”” font_weight=”600″ text=”Test your offer and price, and be creative.” line_height=”1.4″][tm_spacer size=”lg:23″][tm_heading tag=”div” custom_google_font=”” text=”First, more parties bidding up deals means even more likelihood of overpayment and disappointing returns. Second, these very same sovereign wealth funds and family offices have been significant private equity fund investors.”][/vc_column_inner][vc_column_inner offset=”vc_col-md-6″][tm_spacer size=”sm:40″][tm_image full_wide=”1″ image=”876″][/vc_column_inner][/vc_row_inner][/vc_column][/vc_row]