Some Buyout Firms Taking Debt-Laced Dividends

A new Moody’s report shows that certain aggressive buyout firms are taking debt-financed dividends from the companies they own, and “potentially jeopardizing their ability to navigate a downturn,” according to an article in Institutional Investor. The report shows that, since the end of 2009, Leonard Green & Partners, American Securities, Golden Gate Capital, TPG, and Apollo Global Management “have most frequently taken debt-financed dividends from companies they’ve bought,” with Apollo standing out because the dividends… Read More

S&P Global Says Watch for Aggressive Private Equity Tactics

According to an article in Institutional Investor, a new report published by S&P Global Ratings suggests “It might be worth questioning the earnings of companies being bought by private equity firms.” “In analysis of companies involved in deal making in 2015,” the article says, “S&P found that the earnings projections were unrealistically high on average across leveraged buyouts and mergers due to so-called ‘add-backs’—adjustments made to account for expected costs savings or an anticipated rise… Read More

In Private Equity, the Past May Be a Guide to Future Results

A new study supports the notion that private equity and venture capital managers that “do well with one fund are more likely to do well with the next,” according to a recent article in The Wall Street Journal. The study, conducted by data company PitchBook, supports data reflected in several academic studies, the article says. However, the question remains as to whether performance comes down to a firm’s methods or the talent of individual deal makers.… Read More

Private Equity Market is Consolidating, Data Shows

According to a white paper by advisory firm Triago, private equity firms have acquired their peers in more than 150 deals since 2005, with 65% of the deals occurring in the past five years and a record of more than 25 in 2017. This according to a recent article in Institutional Investor. The paper suggests that the consolidation is a sign that the market has “grown up,” reflecting firms’ efforts to expand their strategies and… Read More

Private Equity is Losing Its Appeal, But You’re Already Invested

“Even if you’ve never talked to a fund manager, or don’t have any idea what a leveraged buyout is, your financial future still depends on this enigmatic world of finance, full of risks and promises usually reserved for wealthy investors.” This according to a recent article in the Boston Globe. The article points out that major pension funds have billions invested in private equity and that, even if you’re not in line for a state… Read More

Private Equity Performance Numbers May Undermine Credibility

Internal rate of return (IRR), the key performance measure of private equity firms, is at the risk of being “massaged in a way that undermines the industry’s credibility and adds dangers when a downturn comes,” according to a recent article in The Wall Street Journal. The IRR, the article explains, is based on a complex set of numbers tied to fund cash flows but the increased use of bridge financing by firms (borrowing money to… Read More

Does Private Equity Beat the Market?

A recent Wall Street Journal article addresses reader comments regarding the uptick in the cash balances held by private equity firms. Below are samples of reader questions and corresponding WSJ responses: Are these companies keeping cash in the bank and then borrowing to fund acquisitions? A bit of both, says WSJ. Private-equity funds, it says, use “lots of debt, or leverage, on top of their equity when they buy a company. This boosts the returns… Read More

For Hedge Funds, Being Like Buffett Isn’t Easy

While Warren Buffett’s track record is appealing to large private equity firms, his buy-and-hold strategy (averaging 10-20 years rather than the hedge fund industry norm of 3-5 years) can be hard for many to adopt, according to a recent Bloomberg article. “To play,” the article says, “they would need to give themselves lots of time—decades, in fact—and as near-to-permanent capital as they could muster. Ambitious buyout firms bet that by raising long-duration funds, they would finally… Read More

Rising Leveraged Debt a Worry

The number of leveraged loans (lending agreements with the most indebted companies in the U.S. and Europe) is high, according to The Wall Street Journal, a “development that investors worry could pressure financial markets if the global economic expansion starts to fade.” SBC Global Market Intelligence data shows that volume for leveraged loans is up 53% this year in the U.S. and is on track to beat the 2007 record of $534 billion. Even though… Read More