Wednesday, June 22, 2022

PEU Self Service Questioned


FT
reported:

Vincent Mortier, Amundi Asset Management’s chief investment officer, said this month that parts of the buyout business “look like a pyramid scheme” because of “circular” deals in which companies are sold between private owners at high valuations. 

A common feature is that a stake in one or more portfolio companies is sold from one fund to another, both of which are controlled by the same private equity firm. 

Speaking privately, some pension funds are frustrated. “This is wonderful for the [buyout groups]; it’s one of the best things they ever discovered,” says one pension fund’s head of private equity, who asked not to be named. 

But “it’s one of the worst things” for their investors, he adds. “The pie is getting bigger” as private equity balloons in size, he says, but “more of the pie is going to the [private equity firm] and less is going to [its investors].”  

Public companies have seen valuations decline significantly.  Private equity underwriters (PEU) are yet to reveal their corporate markdowns.  

Publicly traded PEUs are down 25% since April Fool's Day and Barron's says are worth buying.  Really?  There's been barely any time for rich PEU valuations to reset and worm their way through the financial system (capital calls, debt downgrades, handing affiliates over to debtholders).

The greed and leverage boys would love nothing other than a quick bottom and return to asset reflation.  In the meantime they want you to buy (like Barron's).  You too can be like billionaire David Rubenstein, co-founder of The Carlyle Group. 

The difference is he's a policy making billionaire scrambling to save his cryptocurrency service investment in Paxos.  It's not clear if any of his recent $77 million Carlyle stock sale went to prop up Paxos.  

Update 6-23-22:  Coinflex and Voyager Digital placed restrictions on withdrawals from investor's crypto accounts.    This follows Terra's implosion of an algorithmic derived cryptocurrency and crypto lender Celsius' freezing of accounts.  Babel Finance executed a similar move as Celsius.  Add the suspected insolvency of Three Arrows Capital, a crypto hedge fund and one has to wonder how Paxos is holding up.

Update 6-28-22:  Carlyle invested 15 million more Euros in affiliate Memsource.  It acquired the firm two years ago.

Update 7-16-22:  Celsius joined 3 Arrows Capital and Voyager in bankruptcy.