Private equity commitments are being sold for 30 cents on the dollar, as nobody wants to put more money in with these leveraged liars who previously masqueraded as Masters of the Universe.
So who's buying these commitments?
Probably someone who will want to represent that the investment is worth 100 cents on the dollar! From FT:
Investors in buy-out funds are so concerned private equity returns will slump in the years ahead that they are selling their commitments for as little as 30 per cent of their original value.
Eighteen months ago, if such stakes were available at all, they generally traded at a premium.
The collapse in valuations reflects growing concerns that many private equity-owned companies will implode as the economic contraction intensifies. Some of the largest deals, struck at the height of the private equity boom that ended in the spring of 2007, now look to be disastrous for the equity holders.
Nonetheless, the sell-out from private equity funds is gathering speed as pension funds, endowments and family offices realise these funds are likely to fall far short of original target returns. They are already reeling from losses in the stock market and on hedge fund investments.
Monte Brem, chief executive of StepStone, which acts on behalf of such investors, says he thinks it may make more sense to buy funds at a sharp discount in the secondary market rather than paying full price for stakes in new funds. Mr Brem is now considering buying stakes in the secondary market for his clients.
The growth of activity in the discounted secondary market for private equity fund stakes is compounding problems for firms seeking to raise new funds. Even those firms whose portfolios have held up the best, such as Blackstone, are finding the going very slow.