FT reported:
UK private equity managers now see selling companies to themselves as their best option to offload investments, according to new research, as a moribund IPO market and the higher cost of financing deals make traditional exit routes more difficult.
Disposals to so-called continuation funds are the most popular option for private equity executives seeking an exit from their investments, according to a poll of 200 senior UK-based industry professionals carried out by Numis.
The results, due to be published this week, underline the rising trend of private equity funds turning to newer funds raised by the same firm as they seek to sell their assets to return cash to investors.
The piece warmed my heart when it stated:
The growing use of continuation funds has attracted scrutiny with the chief investment officer of asset manager Amundi last year likening parts of the private equity industry to a “Ponzi scheme” that would face a reckoning in the coming years.Private equity underwriters (PEU) have considerable leeway in valuing assets. Selling an affiliate to another fund in the same PEU seems hardly arms length. This is not a new practice. The Carlyle Group sold PPD to itself in 2017 before ringing the IPO register in 2020. In between Carlyle bled PPD for dividends.
Ponzi schemes, like any scam, can eventually blow up. A PEU implosion could impact pension funds, thus pensioners.
The Bank of England recently set up a lending facility for non-banks. Are they anticipating trouble with private equity underwriters (PEU)?
It's a PEU chess board and the greed and leverage boys don't like to telegraph their moves.
Update 10-24-23: Bubble Trouble did a podcast on this topic.
