Bankruptcies in the Recession

Private Equity-Backed Firms Do Better in the Recession

It's going to be difficult for private equity managers to convince investors that they should commit capital to private equity, especially after the impressive performance by hedge funds in 2009.  A new study by the Private Equity Council should give some new ammunition to managers making that pitch.  The PEC found that private equity-backed firms weathered the recession better than comparable businesses.

According to the PE trade group's study, "the annualized default rate for the more than 3,200 private equity-backed companies acquired between 2000 and 2009 and held through 2008-2009 was 2.8 percent during the two-year recession. That compares to a 6.2 percent annualized default rate for similarly-financed businesses."  While some high-profile private equity-backed companies fell into default during the recession, it appears that buyout firms may have built up some trust with buyout targets by proving their ability to steer companies through rough waters.

Private equity-backed companies weathered the “Great Recession” significantly better than comparable businesses, according to a new study released today by the Private Equity Council (PEC).

The study found that the annualized default rate for the more than 3,200 private equity-backed companies acquired between 2000 and 2009 and held through 2008-2009 was 2.8 percent during the two-year recession. That compares to a 6.2 percent annualized default rate for similarly-financed businesses.

“This study is an important contribution to an informed discussion about private equity ownership,” said PEC President Douglas Lowenstein. “The low default rate is another indicator that undercuts popular myths about private equity ownership and suggests that private equity firms are effective at steering companies through troubled times.”

The PEC’s findings are consistent with a variety of independent research studies conducted in the past few years, including a 2008 report by the Bank for International Settlements (BIS) and a 2009 study by Steven N. Kaplan of the University of Chicago and Per Strömberg of the Stockholm School of Economics.

The BIS study found that private equity-backed companies had annualized default rates of 2.13 percent from 1982 to 1986; 3.14 percent from 1987 to 1991; 2.63 percent from 1992 to 1996, and 3.84 from 1997-2001. Kaplan and Strömberg reported a rate of 1.2 percent over the 32 years from 1970 to 2002. The PEC study is the first to analyze data from the 2008-2009 recession.  Source

For a great list of corporate bankruptcies during the recession, see this post.



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Tags:  private equity, private equity bankruptcy, bankruptcies, corporate bankruptcy, bankruptcy private equity backed companies, private equity management, recession

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Preliminary 2010 Q1 Data

Preliminary Private Equity Data for First Quarter of 2010

Some early data from peHUB shows that PE dealmaking has fallen in the first quarter of 2010.  Although this is just preliminary data, it is more troubling news about the PE industry as other sectors of the financial industry are bouncing back.  Global M&A fell by about two thousand from the last quarter of 2009.  According to the database, global private equity-sponsored deal volume during Q1 was $31 billion from 625 deals, down considerably from $55 billion for 761 deals in Q4 2009.  Buyout fundraising is still struggling and venture capital fundraising is predictably hurting even more. 

Global PE-sponsored deal volume for Q1 is at just over $31 billion for 625 deals, compared to $55 billion for 761 deals in Q4 2009. The prior first quarter had just $17 billion for 639 deals.
Private equity’s percentage of the total M&A pot is 5.7% in Q1 2010, which is the lowest total since Q2 of last year (3.2%).
Fundraising by U.S.-based buyout and mezzanine funds remains sluggish. As of this morning, our database shows just $13.57 billion raised by 42 such funds in Q1. When all the numbers are counted, however, Q1 could still top the $14 billion raised in Q4 2009.
Venture fundraising is even worse, with just $2.66 billion banked by 23 U.S.-based VC funds. Likely to be worse than the $4.06 billion raised in Q4 2009, but already better than the $2.3 billion raised in Q3 2009.  Source

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Apollo IPO

Apollo Plans $50 Million Initial Public Offering on NYSE

Apollo Management has announced its plans for a $50 million through an IPO.  Apollo is one of the largest private equity firms and hopes to have $50 million of its shares listed publicly on the New York Stock Exchange.  Although it represents only a small portion of Apollo's shares, it is important in that the buyout giant would become one of only a few publicly traded private equity firms.  Blackstone of course went public three years ago and KKR recently announced that it intends to follow suit with an IPO.

New York-based Apollo previously announced plans to move its shares -- currently traded on a private exchange -- to the NYSE, but had not previously proposed offering shares in the listing. The offering would represent only a small percentage of the overall company.

Founded by former Drexel Burnham Lambert banker Leon Black in 1990, Apollo has assets under management of $53.6 billion which includes investments in companies such as gaming company Harrah's Entertainment Inc and real estate company Realogy.

Apollo said in a statement that offering the shares would give existing institutional shareholders an opportunity to sell if they desired. It plans to use proceeds from the offering for "general corporate purposes and to fund growth initiatives.  Source

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M&A Activity in 2010

M&A Activity Expected to Rise Significantly in 2010

Buyout activity appears to be increasing, pitting buyout firms against one another looking for potential investments.  Buyout firms are employing aggressive methods to buy targets before rivals do which is a welcome change from the last year's extremely low M&A activity.

Over the past six months, a thaw in credit markets and increased visibility over company earnings has triggered a rash of M&A activity. Private equity sellers have launched auctions, and buyers have returned to bid for targets last looked at before the credit crunch.
The total value of buyout deals in Europe alone so far this year is EUR9.08 billion, compared with just EUR3.7 billion, for the first three months of last year, according to Dealogic.
However, in their rush to secure deals, some buyout firms are splashing out exorbitantly and swiping companies out from under the noses of competitors already some way to clinching a deal.
"There is definitely a bit of a bubble," said Jennifer Dunstan, partner at 3i Group PLC (III.LN).
"Prices have stabilized and debt is trickling back, but there is a very limited supply of high-quality assets and some funds are looking to make deals very aggressively," she added.  Source

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Buyout Mistakes

Rubenstein on Mistakes Made by Buyout Firms in the Crisis

I was reading through a recent Wall Street Journal story about private equity managers not owning up to making mistakes in the financial crisis.  The story centers around comments made by Carlyle's David Rubenstein talking about the "temptation" in accepting offers from investment banks to fund deals.

According to the WSJ, Rubenstein uses the availability of credit to justify making bad deals and not anticipating sinking investments.  The easy lending pre-crisis certainly led to some poor deals but it should not have robbed private equity managers of their better judgment.  It's always interesting to hear what one of the biggest in buyouts has to say.

Rubenstein stuck to the party line that during a bubble, human nature makes it hard to resist participating. “Debt was offered to you no matter what,” he said..“Very few of us were able to resist the temptation,” Rubenstein said.

A few other points he made during the breakfast meeting:
*While the Volcker rule might benefit firms like Carlyle, by banning banks from investing in private equity deals and thereby getting rid of a group of competitors, Rubenstein said he doesn’t really see the need for such legislation. “The problems…did not come about because banks were investing in private equity or hedge funds,” Rubenstein said. The rule is not “the salvation of the Western world.”

*He expects some of the largest 20 buyouts done during the last boom to go public in the next year or so. He said that while some of these companies won’t ultimately be great deals for their private equity backers, they won’t go bankrupt. For one thing, their performance has been better than many perhaps expected it to be through the downturn. And for another thing, “Banks don’t really want to take over these companies,” Rubenstein said.  Source

Resource #1:



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Tags: private equity firms, buyouts, buyouts financial crisis, financial crisis buyout errors, buyouts investments, investments, carlyle group, david rubenstein

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Providence Equity Kabel Deutshland IPO

Providence Equity IPO

Providence's Kabel Deutshland Holds Successful IPO

This has been a good month for private equity-backed IPO's.  Providence Equity successfully backed an initial public offering of German cable firm, Kabel Deutschland.  Buyout firms have been riding the stock market's rally to hold IPO's and sell portfolio companies to corporate buyers.

Providence's success with Kabel Deutschland comes as its struggles with another high-profile investment draws to a close.

The stock-market rally has been a boon for buyout shops, which need to harvest profits and return money to investors after nearly 2½ years of being unable to sell their portfolio companies or bring them to market in an IPO. This week, private-equity firm Apax Partners agreed to sell Tommy Hilfiger to Phillips-Van Heusen Corp. for roughly $3 billion, a deal expected to earn Apax and its investors $1.85 billion.

There were signs of improvement this past week in the European IPO market, which has trailed the U.S. in its recovery. Friday, Barrick Gold Corp. the world's largest gold producer, raised about $880 million in an IPO of its African business, the largest IPO on London's stock exchange since 2008.  Source

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Dodd Finance Bill

How Dodd's Financial Reform Bill Affects Private Equity

Senator Christopher Dodd has written a bill that largely focuses on hedge funds and those investment banks that pose a "systemic risk" and avoided much scrutiny of the private equity and venture capital industry (See this article).  Dan Primack of peHUB has put together a really good explanation of Senator Dodd's proposed financial reform bill.  Here is the abbreviated list of highlights, you can read the full analysis here.

1. Dodd retains the original Senate bill’s registration exemption for venture capital and private equity funds.

2. Dodd adopts the Volcker Rule principles, which would prohibit a bank from sponsoring a “private equity” vehicle.

3. Dodd exempts Small Business Investment Company (SBIC) investing from Volcker Rules.

4. The GAO shall “conduct a study of the feasibility of forming a self-regulatory organization to oversee private funds, private equity funds and venture capital funds.”

5. Dodd retained a proposed increase to the threshhold of “accredited investors.” 

6. Dodd retained language that would give state regulators authority over Regulation D offerings.  

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Yale Alternative Allocations

Yale Fund Increases Private Equity, Cuts Hedge Funds

Yale University is making a surprising move in its alternative asset allocations.  The $16.3 billion endowment fund is increasing its private equity allocations while reducing its investments in hedge funds.  This shows a new confidence in the private equity industry and, in an online report issued by the fund, the fund's management said they expected private equity to outperform.

Yale University is cutting its hedge fund exposure and upping its investment in private equity.

The private research university, which has a $16.3 billion endowment fund, is decreasing its hedge fund allocation by 6% to 15%. Meanwhile, its private equity target has been raised to 26% from 21%.

The university released its portfolio rebalancing in an online report Thursday. A representative for the school declined additional comment.

The report anticipated private equity would outperform, noting alternative investing exploited market inefficiency. Private equity has earned more than 30% since the school started investing in the asset class in 1970.

Yale University investment head David Swensen has been a longtime advocate for alternative investing; championing it as superior to traditional asset management. The Ivy League school has the second richest endowment fund after Harvard University, which has $25 billion in capital.  Source

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Blackstone Banks Fund

Blackstone to Create $1 Billion Failed-Bank Fund

It appears private equity firms are finally looking to gain from the troubled banks in the financial crisis.  Many buyout firms were ready to invest in failed banks last year but talks with the FDIC went on for some time and the regulator settled on tough guidelines that many firms would not agree to.  Now, members of the private equity industry are set to meet with the FDIC to review the rules (see this article).   One buyout firm that is ready to invest in banks is Blackstone Group, which is reportedly putting together a $1 billion fund for failed banks.

The private equity giant is in preliminary talks to raise $1 billion for a blind pool to acquire failed banks, Bloomberg News reports. The planned fund follows Blackstone’s purchase in May—alongside W.L. Ross & Co. and the Carlyle Group—of BankUnited Financial Corp. and January’s news that billionaire entrepreneur Richard Branson had approached the firm about backing his bid for the failed British lender Northern Rock.

Blackstone has also applied for a British bank charter in connection with its plans to launch a new bank with hedge fund Cambridge Place Investment Management.
The New York-based firm is working with the former president of Bluebonnet Savings Bank, R. Brad Oates, on the new blind pool.

Alternative investment firms have been active in buying failed banks in recent months, with Dune Capital Management, Elliott Management, Greenlight Capital, J.C. Flowers & Co., Paulson & Co. and Soros Fund Management all taking part in deals for seized banks.  Source

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Private Equity Venture Capital Regulation

Private Equity VC Regulation

Private Equity & Venture Capital May Avoid US Regulation

Private equity and venture capital seemed to be sure-targets for Capitol Hill, as legislators draft financial regulations.  The latest draft by Senate Banking Committee Chairman Chris Dodd does not focus much on buyout firms or venture capitalists.  For example, the controversial provision forcing hedge funds with over $100 million under management to register with the SEC explicitly excludes private equity and venture capital firms from this requirement.  Dodd and his colleagues--along with the Obama administration--now appear to believe that hedge funds pose a far greater systemic risk than private equity.

The approach now taken by Dodd and others posits that hedge funds pose more systemic risk than do private-equity funds, a view the private-equity industry has been advocating for some time.
Dodd's bill represents an "excellent approach," said Doug Lowenstein, president of the Private Equity Council, a trade group whose members include the largest private-equity firms. "Private equity doesn't create systemic risk, and the bill recognizes that," Lowenstein said. "It's well-reasoned."

If the Senate bill passes, it would have to be reconciled with the House version. But Bruce Morrison, a former U.S. congressman from Connecticut who now runs strategic lobbying firm Morrison Public Affairs Group, said that process would probably be relatively simple.

"Unless there is a PE [private-equity] horror story around, the Senate approach will probably hold," Morrison said.

The bill doesn't let the private-equity industry off the hook entirely. For one thing, definitions of what distinguishes private-equity and venture-capital firms from hedge funds have yet to be created. Language that would ban banks from having private-equity arms or investing in private-equity funds also made it into the bill.  Source

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Private Equity Hedge Funds Game

Private Equity and Hedge Funds Face Off for Good Cause

I have frequently compared private equity and hedge funds on this blog because they share a lot of the same characteristics.  Both are private investment vehicles, largely exclusive to accredited investors, and classified as alternative assets.  Another important similarity is that both industries are the target of legislation and pushes for increased regulation.  While neither would like to share the spotlight cast by legislators, the two sides have come together for a good cause.

Tomorrow night New York University will host the third annual Hedge Fund vs. Private Equity All-Star Game.  The event will benefit a youth program, Youth Inc., which helps public high school teams who do not have a basketball court.  Private equity has came out on top in the last two years but it should be a good game tomorrow. 

Final rosters weren’t available at press time, but we know at least MidOcean Partners Chief Executive Ted Virtue and GenNx360 Capital Partners Managing Partner Ronald Blaylock will be defending PE’s name.

“We’ve got some aged warriors,” Virtue said, when asked who the team’s MVP will be. “(Blaylock is) our go-to-guy.”

Buyouts have a 2-0 edge in the series, although Virtue worried the streak could be in jeopardy this year. “The hedge fund guys have been recruiting some Division I basketball guys, so I’m a little nervous,” Virtue said.

The tournament, besides the PE-hedge fund match-up, includes about 20 teams made up of bankers and other finance pros, as well as students. Celebrity coaches include former New York Knicks Walt Frazier, John Starks and Charles Smith. The games tip off at 5:30 p.m.  Source

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KKR New York Stock Exchange

KKR Files with SEC to Join New York Stock Exchange

For those of us following Kohlberg Kravis Roberts & Co's initial public offering, another announcement that KKR is headed toward going public should be met with some skepticism.  The buyout heavyweight has been expressing interest in going public for three years and has made various moves to do so but delayed then canceled these plans repeatedly.

Now, a new development in the private equity firm's attempt to go public, KKR has filed to become a publicly traded company on the New York Stock Exchange.  The company received a $7.5 billion market capitalization valuation and intends to sell about 30% of its shares to the public.  The rest of the KKR shares would belong to the firm's principals so they could still determine the direction of the company and have control over most decisions.  If KKR does go through with this initial public offering it will demonstrate a strong confidence in the market and in the public's interest in private equity.  Forgive me if I'm still a bit skeptical about this IPO, it has been about three years coming.

KKR said it would offer 204.9m common units worth about $2.2bn, equivalent to 30 per cent of its overall share capital.

The New York-listed shares in KKR would be exchanged on a one-for-one basis with those of its KKR Guernsey vehicle, which was created last year by the private equity group’s merger with its Amsterdam-listed permanent capital fund.

Like many of its big rivals, KKR’s fortunes have been buoyed recently by a rebound in financial markets, which has helped shares in its Amsterdam-listed unit to rise more than fivefold in the last year. In the same time, Blackstone shares have more than doubled to about $15, still well below their $31 listing price.

KKR has $2bn of debt, giving it an enterprise value of about $9.5bn.
In Friday’s filing to the Securities and Exchange Commission, KKR said Mr Kravis and Mr Roberts would maintain control over the firm’s managing partner, via a combined majority of the A shares, allowing them to choose its board members. Source

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Private Equity Tech M&A

Video on Private Equity Tech Companies and Valuations

Public companies valuations are starting to reach a more realistic price while private companies are still demanding a higher price than buyers are willing to pay.  Here is a short video interview of Patrick Pohlen, a partner at Latham & Watkins LLP, on technology mergers and acquisitions.  E-mail subscribers can watch the video here.







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Start A Hedge Fund

Start A Hedge Fund

Concise Guide on How to Start a Hedge Fund

Richard Wilson is a well-known commentator in the hedge fund industry and he has put together a concise guide on how to start a hedge fund.  Although this is not directly related to private equity, I thought some readers might be interested.  For tips on how to start a private equity fund see this post.

I have advised and worked with over 400 hedge fund startups of all different strategies and geographical locations and we have identified capital raising strategies, best practices, and the most common mistakes made by emerging hedge fund managers.

We have captured our consulting advice and over 100 hedge fund startup lessons within our e-book, "Start A Hedge Fund Now."

Within This Book You Will Receive:

• An open transcript of an interview with an established hedge fund manager who provides advice on what he learned while launching his hedge fund
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• Direct capital raising consulting advice on how to raise capital for a new hedge fund business
• The Top 10 Common $10,000 mistakes often made every day by new hedge funds and our advice on how to avoid these mistakes
• A guide to writing your hedge fund business plan
• Strategies on how to upgrade the pedigree, credentials, and education of your team
• 17 direct lessons from successful fast growing hedge fund businesses that you can use within your new hedge fund

This E-Book PDF Also Provides You With:

• Guides to understanding, interviewing, and selecting prime brokers, incubation programs, administrators, third party marketers, formation attorneys, and compliance consultants
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• Email marketing best practices to employ while speaking to potential investors
• Why many hedge fund marketing tactics waste time and money and a breakdown on what these top 10 capital raising mistakes are so you may avoid them in your business
• Section-by-Section instructions and tips for creating your PowerPoint pitch book that is expected or required to raise capital from every type of investor

To purchase this e-book which represents around $3,000 worth of hedge fund startup consulting advice for $17 please visit StartAHedgeFundNow.com


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Leveraged Buyout Fundraising

Leveraged Buyout Firms Dry Powder Problem

Private equity firms have a problem: too much dry powder without enough deals to spend it.  With buyout firms holding an estimated $503 billion there is pressure to spend that money or funds will have to return that money to investors or ask them for more time to find investments.

Large buyout funds with the most dry powder will likely face the most pressure to execute deals.  It's hard to say whether this really the downside to three years of great fundraising; yes, funds may lose money they raised from investors during that time but investors will likely understand the difficult environment and even extend the time given to firms. 

Firms led by Blackstone Group LP and KKR & Co. announced $87 billion in deals over the past 12 months, according to data compiled by Bloomberg. At that rate, it would take until the middle of 2021 to invest an estimated $503 billion in unspent money, assuming they borrow half the purchase price. Firms usually have three to six years to deploy commitments.

“Unless things really change, larger funds will be especially hard pressed to put their money to work,” said Steve Kaplan, a finance professor at the University of Chicago.

The record amount of capital, most of it raised during a three-year boom that ended with the financial crisis, coupled with fewer and smaller purchases, means firms may have to ask for more time or release investors from capital commitments if they can’t put the money to work.

Boston-based Thomas H. Lee Partners has three years left to invest almost half of a $10 billion fund raised in 2006, and London-based Permira Advisers LLP has until the end of 2012 to put $4.9 billion of a $12.2 billion fund to work, according to researcher Preqin Ltd.  Source

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Colombia Proteccion Private Equity

Colombia's Proteccion Investing $1.3 bil in Private Equity

In a tough (to put it mildly) time for private equity fundraising, a major commitment from an international pension fund is encouraging news.  Proteccion SA, Columbia's second-biggest pension fund, has announced plans to up its private equity allocations to roughly $1.3 billion over the next two years.  The fund is boosting its allocation from less than 1% to 10% of its 24 trillion pesos in assets.

...Juan Luis Escobar, the fund’s chief financial officer, said in an interview from his office in Medellin yesterday. Proteccion plans to stop buying stocks after they grew to 40 percent of its holdings, the maximum allowed, following a 53 percent gain for Colombia’s IGBC Index last year.

Colombian pension funds are boosting private equity investments to take advantage of a surge in government infrastructure spending aimed at helping pull the South American country out of its first recession in a decade. Buyout funds from Darby Overseas Investments Ltd and Brookfield Asset Management Inc. are moving into the country and the government said a year ago that it would set up a $500 million fund.

“We can’t buy more stocks so private equity is the most exciting thing right now,” said Escobar, 45. “We are looking at infrastructure funds that invest in highways, water treatment, waste and airports.”  Source

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Germany Private Equity 2010

German Buyout Firms Look For More Deals in 2010

I haven't covered much on Germany's private equity industry so here is a brief snapshot of the current outlook.  European private equity firms were hit hard during the financial crisis but in Germany buyout firms are hoping to improve dramatically on last year's weak showing.  Private equity firms in Germany invested just $3.2 billion last year, but German buyout firms are looking for opportunities in companies in financial trouble, even facing bankruptcy. 

Private equity companies in Germany expect to spend more this year than the 2.36 billion euros ($3.2 billion) they invested in Europe's largest economy in 2009, as rising insolvencies pave the way for further deals.

The volume of private equity deals shrivelled in 2009 after banks stopped providing funds for leveraged buyouts, but have started rising again, the German Private Equity and Venture Capital Association BVK said Monday.

"We expect a sustainable continuation of this trend," BVK president Hanns Ostermeier said.
Companies battling insolvency or financing problems were seen as attractive investment opportunities, the BVK said.  Source

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Tags: Germany Private Equity 2010, Germany Private Equity, German private equity firms, germany private equity, private equity firms in germany, private equity investments in germany, buyouts germany

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Private Equity Funds Leverage

Buyout Funds Slowly Returning to Leverage after Crisis

Hedge funds and private equity funds are slowly returning to leverage, according to fund execs at a recent summit.  During the credit crisis, alternative funds cut their borrowing almost entirely but as credit has freed up funds are slowly implementing leverage in their strategies and deals again. 

The low level of borrowing means less market volatility as hedge funds and private equity funds do not have to worry over banks' margin calls which impact their decisions and trades.  The London Interbank Offered Rate for leverage has gone down to a more reasonable rate following the crisis and banks are more willing to lend, spurring more interest in borrowing but it will still be some time before funds are comfortable enough to borrow at pre-crisis levels again.  

While banks are more prepared to lend than last year, lending levels are far lower than in the heady days before the Lehman collapse, fund executives told the Reuters Private Equity and Hedge Funds Summit in London.

Funds too are limiting borrowing to manageable levels.

"Levels of leverage have fallen dramatically on all our strategies, for example our convertible strategies are running with no leverage," said Chris Goekjian, chief investment officer of private equity firm Cheyne Capital.

"Even if you want leverage now, your prime broker won't (always) give it to you," said Goekjian, whose company is looking to launch an EU-regulated fund to invest in merger arbitrage.

"Leverage has returned and it is well priced, diversified and well risk-managed," said Oliver Dobbs, chief investment officer of $6.7 billion hedge fund company CQS.  Source

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Tags: private equity, private equity funds, private equity leverage, debt-to-equity ratio, private equity borrowing, debt, leverage, leveraged deal, leveraged buyout

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Sovereign Wealth Fund Competition

Sovereign Wealth Funds, Private Equity Compete for Assets

Sovereign wealth funds, long seen as a valuable investor to private equity and hedge funds, are now starting to compete with alternative funds for investors.  The huge state-owned investment vehicles are looking to manage assets for outside investors, too.  These outside investors include institutional investors like pension funds and endowments, which are major investors in private equity and hedge funds. 

While external money currently accounts for just a small part of total assets of the wealth funds, state investors from Abu Dhabi and Singapore now view clinching mandates from pension funds and family offices as part of their business, putting them in direct competition with private sector managers.

"In the medium term -- a five-year time horizon -- the largest and top-performing multi-strategy funds in the world might well be those run by sovereign wealth funds, and not by the traditional and best known players in the hedge fund space," said Aureliano Gentilini, Lipper's global head of hedge fund research.

Even China Investment Corp (CIC) , a relatively new sovereign fund unlike its Middle East counterparts, is getting into the act through CITIC Capital, which last month raised $925 million for a China buyout fund.  Source

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Tags: Sovereign Wealth Fund Competition, Sovereign Wealth Funds, Sovereign Wealth Funds, Sovereign Wealth Funds Managing Investors Assets, Sovereign Wealth Funds investments

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Alternative Funds Future

Alternative Funds Try to Keep Profits As Investors Ask More

The alternative asset fund may face some changes in the future as investors are pushing for a different fee structure and more active supervision of management.  Hedge funds and private equity firms are concerned that by cutting fees the funds will not be able to keep up profits.

Small firms in particular face cost pressure to meet increasing demand for managed accounts -- individual portfolios that give clients closer control of assets -- and pressure to cut lucrative fees.

At the same time, private equity firms are not able to sell as many companies, hitting bonus pools, while hedge funds have found the client assets from which they harvest management fees greatly reduced.

"Investor expectations of governance have increased dramatically ... It's quite hard for single-strategy boutiques to meet those expectations," Charles Kirwan-Taylor, chief investment officer of RAB Capital (RAB.L), told the Reuters Hedge Fund and Private Equity Summit in London.

Whilst clients have stopped pulling money out of the $1.6 trillion (1.1 trillion pound) hedge fund industry and in the fourth quarter of last year reinvested a net $13.8 billion, asset levels for most hedge fund firms are well below boom levels.  Source

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Private Equity Secondary Prices

Private Equity Secondary Prices More than Double

There are encouraging signs in the private equity secondary market and thus in the private equity industry as a whole, according to a fund of funds and secondary specialist.  Private equity secondary prices have more than doubled since being in the doldrums in 2009.   If this trend continues it could represent greater confidence in buyout firms.

The private equity secondaries market allows buyers and sellers to trade otherwise illiquid positions in private equity funds. Only about half the anticipated $25 billion to $30 billion in assets traded in 2009 as sellers balked at the low prices they were offered.

But it is opening up once more as discounts to net asset value have narrowed, Bob Long, president and CEO of Conversus Capital, told the Reuters Private Equity and Hedge Funds Summit in London.

"Pricing has recovered at a remarkable rate," Long said. "It has doubled, if not more, from March/April lows."

Positions in high quality, mature private equity funds are going for 80 percent of net asset value, compared with just 30 or 40 percent of NAV in March and April 2009, Long said.  Source

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Tags: Private Equity Secondary Prices, private equity secondaries, private equity secondary market, buyouts secondary funds, buyout secondary market

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