Private equity funds are endlessly changing finance

"Private equity" funds are endlessly changing finance. Now, these investment structures who Excel in the art to restructure and enhance companies not listed by financing their acquisitions by debt are more content to come shopping on equity markets. This summer, these investment funds have taken a new step in introducing stock. In Europe, KKR, one of the largest US Fund, initiated the movement making its debut at the stock exchange in Amsterdam last May. Created in 1976 by Henry Kravis, his cousin George Roberts and their mentor Jerôme Kohlberg, the Fund quickly emerged as one of the most active across the Atlantic. He realized its largest move of brilliance in 1989 with the LBO (repurchase of company by its employees with"leverage", that is funded by debt) Nabisco (biscuit) for $ 31.4 billion. In France, the Fund is illustrated through the operation on Legrand in 2002 and, more recently, on PagesJaunes.

In August, Apollo Management, another American heavy weight, her step the step (also in Amsterdam) with the introduction of AP Alternative Assets, a side vehicle registered in Guernsey. Late September, Swiss Partners Group made its debut in London on the Alternative Investment Market.

Currently, market halls rustle of rumours about possible introductions to British Doughty Hanson, Swedish ft, the Pan-European CVC Capital Partners and the American Blackstone, Carlyle and Texas Pacific Group.

In the "road shows", "private equity" Fund did not fail to note the interest of these introductions to private investors. On this type of investment booming, they place the ticket of entry to 25 euros (in introduction of KKR) against 25 millions of dollars usually required for institutional investors to seal a partnership. They them thus open the door of a mode of management that has, for the moment, cleared of excellent returns on investment.

But individuals must all take advantage of this gap to expose their portfolio to the non-coté Currently, the route on the stock exchange of the two major sides funds provide few conclusions. If KKR had a spectacular start (collecting instead of 1.5 billion initially planned $ 5 billion), the course of action quickly corrected to return to its introduction price. This route was then put on the placement of Apollo, who has succeeded in raising $ 1.5 billion (be 1 billion less than planned) while the courses fell from the first sessions. Two years ago, the firm had already attempted a first foray on the stock exchange which brings much answers. After a slow start on the Nasdaq, Apollo Investment course is was strongly restated, displaying a return twice higher than the Russell 2000 index.

On the fundamentals of "private equity" funds, unit trusts or mutual fund managers interviewed are however much more categorical. They are generally favourable. Their main fear lies at the level of return on investment on which the majority of managers anticipate a strong erosion. The multiplication of stakeholders in recent years indeed led to significantly increased premiums granted in the OPA on the future profitability of the investment. This risk concerned also "private equity" funds themselves. In February, Stephen Schwarzman, the pattern of the US funds Blackstone, stated that the prices paid were a "territory where different actors will break the nose". As summarised Emmanuel Pineau, Manager in Tocqueville Finance: "development models which use"private equity"funds are probably sustainable in the short term." But they have so far benefited from exceptionally favourable financing conditions, between the low and the tightening of spreads "spreads" bond markets. Just so every grain of sand so that the machine is influenza.

This sector that has stoked passions nevertheless has as many detractors as active supporters. The investors in reference, include the Washington State Investment Board us pension fund, which spends 17 of its assets to investment in the non-coté, $ 8.8 billion. For Joe Dear, its Executive Director, the main argument is on the horizon of the investment of "private equity" that he considers more relevant than that of the stock market, taking into account that there are companies listed on each quarterly publication high pressure. If the latter has not desired comment on recent introductions, he defends that "though even profitability declines from the current peak, return on investment is on average 39 on the non-coté against 9.9 for the Dow Jones, leaving even a broad margin of manoeuvre." "In the coming months, this erosion will concern all size operations average, because taking into account the necessary capital resources, it will be difficult for new entrants to compete with the large"private equity"funds".

Stretched valuations

Between these headwinds, the managers of heritage remain perplexed. "In theory, the non-coté is a form of interesting diversification," said Arnaud de Langautier, Director of management in CCR Chevrillon Philippe. "The sector has everything to seduce the individuals that the volatility of equity markets are always." In comparison, they provide a haven of peace since the commitment is generally eight years. But the timing does not seem appropriate. A bubble is in effect incorporated on the non-coté and prices are now higher on the stock exchange. Today, it is therefore essential to focus on the more established teams, rather than new entrants. And, above all, it is more advantageous to seek targets in exchange for a possible takeover by investment funds.

At Pictet & Cie, Aymeric Diday, Director of the private management, also raises the issue of valuation. "" Private equity"funds enter on a peak of market with valuations which seem to us too tense, judge." Term, it is not impossible that the market equates them to holding companies with which the border is more tenuous. When these funds have found their pace to cruise on the stock market, it will be eventually possible to be réintéresser if the haircuts appear too high relative to underlying assets.