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The FT points to conditions of froth in the private equity market. Is private equity in a bubble? It may be, but private equity isn’t the only equity market where bubble conditions are dominant. Check out the U.S. stock market for example.
It is an indication of the feverish conditions in private equity that buyout groups are not only setting new records for fundraising, they are also turning money away at their fastest ever rate.
CVC identified demand of €25bn-€30bn from investors while raising its new €16bn fund last year: more recently Bridgepoint, the private equity owner of Pret A Manger and Fat Face, turned away €5bn, according to people familiar with the fundraisings. Others are yielding to the temptation to take on more cash than expected: Partners Group had been expected to raise a new €2bn fund, but ended up with €6bn to invest.
The buyout industry is on a tear. Funds are raising more money than they can spend, fuelled by low interest rates on other asset classes. Buyout volumes were up 27 per cent year on year in 2017, according to Thomson Reuters, and are expected to accelerate this year, propelled by a record $1.1tn of cash pledged by investors last year….
It is quite amazing that there is no collective memory that goes beyond five years, or that the world is organised in such a way that history keeps on repeating,” says Ludovic Phalippou, a finance professor at the University of Oxford’s Saïd Business School, and the author of Private Equity Laid Bare. “Why would this time be any different?”
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Jeremy Jones, CFA
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