Wednesday, January 25, 2023

Gravity Exists for Levered Equity

Bloomberg noted that gravity still applies to levered equity.  Gravity in public markets has been more severe.  Think of private equity underwriters (PEU) as the Hudson Bay of finance.  CondeNast reported:

Gravity isn’t uniform all over the Earth’s surface. It’s a result of mass, which means the varying density of the Earth at different locations can affect how much you weigh there. Canadians aren’t all free-floating like Sandra Bullock, but the effect is definitely measurable. In the Hudson Bay region, the average resident weighs about a tenth of an ounce less than they would weigh elsewhere.

Private equity sponsors load affiliates with debt, deal fees and management fees.  The greed and leverage boys use nonstandard measures to juice performance numbers.

How all this plays out remains to be seen, however the reckoning awaits.  

Update 1-27-23:  Institutional investors want out of 7% of Blackstone Property Partners.  However, corporate private equity gained 3.8%. 

Its opportunistic and core real estate funds depreciated by 2% and 1.5%, respectively. Secondary funds fell 1.8% while corporate private equity and private credit funds gained 3.8% and 2.4%, respectively.

Gravity still works much slower in PEU land.