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
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
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
Investors have been bullish for some time on areas in which central banks have opened the liquidity spigot. But Mohamed El-Erian says it’s time to focus on other opportunities, including tech start-ups and private equity.
Over the past decade or so, investors — particularly institutional investors — have focused more and more on private equity as a way to get exposure to small, potentially high-growth companies. But in a recent research paper, O’Shaughnessy Asset Management’s Chris Meredith and Patrick O’Shaughnessy explain why microcap equities in many cases are a more attractive alternative to private equity.