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So much for 'private.'

The massive expansion of the private equity markets in the past two years has been fueled by a number of factors including a highly restrictive regulatory environment, cheap debt and a basic perception (and/or reality) that the market is interested in short-term rather than long-term returns. In 2006, the private equity and hedge fund markets set new records as it seems as though every company, both private and public are targets. The torch being carried by the private equity community is that we can clean up these companies, hold them for longer periods without quarterly scrutiny (e.g. KKR's average holding period is 7 years), and prepare them for a sale or a return to the public market. In fact, private equity groups are becoming in effect some of the nations largest employers. With this incredible momentum its curious why some hedge funds and private equity groups are raising capital in the public markets. The benefit of public markets is that capital is permanent and buyout firms won't have to return capital to the investors at the end of a fund's life or upon the wind down of an investment. Yet, it seems that by raising public capital to fund growth, private equity groups are chasing their tail. Welcome back to the highly regulated world that focuses on short-term versus long-term holding periods, is fraught with heavy regulation and oh by the way requires that you disclose your investment strategy...so much for 'private'.

Category(s): Valuation Thoughts
Posted by Brett Suchor at 09:23 PM | Permalink | Comments (0) | TrackBacks (0)