September 17, 2008
Private Equity Firms, Sitting on the Sidelines Loaded with Cash
How fast things change. Just a year and a half ago, Congress and the pundits were riping private equity firms who had just completed a five year buyout binge -- in 2006 alone there were, in amount, one-third of the total buyouts in the last fifteen years. The private equity firms were secretive and used leverage and we did not like them. Now, our publicly traded investment and commercial banks, insurance companies and brokerage firms are in the crapper; the government is getting weekly requests to bail them out -- Bear Stearns, Lehman, Fannie and Freddie, and AIG. On the eve of their government bailout denials or approvals, the parties appeal to, you guessed it, the private equity funds. The PE funds are loaded with cash and waiting for the market to bottom so they can get in and buy at distressed prices. A large part of what Paulsen is doing is attempting, with no success, to put "confidence" back in the market so as to attract the PE money. His strategy is backward--the PE firms will get in when assets are valued and the market clears; government intervention muddies valuations and delays the creation of a true market clearing price at the bottom.
September 17, 2008 | Permalink
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