Tags: Private Equity Firms | cash | money | spend

Private-Equity Firms Looking to Spend $200 Billion Pile of Cash

Private-Equity Firms Looking to Spend $200 Billion Pile of Cash
(Dollar Photo Club)

By    |   Wednesday, 04 May 2016 09:34 AM


A handful of Wall Street’s most powerful private-equity firms may be preparing to launch a spending spree with their collective $200 billion-plus war chest of funds, Business Insider reports.

Private-equity giant KKR & Co. recently said that it had a record-high $35 billion in dry powder, or money waiting to be spent, according to a letter to shareholders.

Four other rival firms have also been socking away cash, BI reports:

  • Oaktree Capital has "near record levels of dry powder shadow AUM," CEO Jay Wintrob said, adding up to $21.4 billion, according to filings.
  • Carlyle Group has a $43 billion war chest, according to first-quarter results.
  • Blackstone Group had amassed about $80 billion in untapped funds as of December, its annual filings show.
  • Apollo Global Management has an estimated $26 billion in its war chest, according to Credit Suisse analysts.

“This pile has been growing for some time, and the fact that it has been allowed to build says something about the industry's struggles to find bargains amid a volatile market, driven by impending interest-rate hikes, a slowdown in China, depressed commodity prices, and shaky leveraged credit markets,” BI explained. “It now has analysts asking when these firms will start spending that money and what they will spend it on.”

Glenn Schorr, an analyst from Evercore ISI, asked Blackstone whether there was incentive for the private-equity firm to start spending, BI reported.

“I don't think we're ... impatient investors. As I say, we wait till there's an interesting investment to draw down the money,” Hamilton James, Blackstone's president and chief operating officer, said in response. “It's not like we take the money and then it burns a hole in our pocket.”

Meanwhile, other PE veterans are warning that “returns now will be lower than investors had come to expect from the asset class; capital distributed back to limited partners will decrease,” Pension and Investing Online reported.

Leon Black, chairman, CEO and director of Apollo Global Management, said private equity transactions are “priced to perfection” meaning they are highly priced.

The average private equity deal of more than $500 million is selling at an 11 times multiple of earnings before interest, taxes, depreciation and amortization, he said. Before the financial crisis, private equity deals were selling for 10.5 times Ebitda. (Ebitda is commonly defined as earnings before interest, taxes, depreciation and amortization. The metric is an indicator of a company's financial performance.)

Meanwhile, David Rubenstein, co-founder and co-CEO of The Carlyle Group, said the presidential election is also a factor in the private-equity market, The markets have “built in a presumption that Hillary Clinton wins” the presidency, Rubenstein said; if another candidate wins, the markets will be “spooked,” P&IOnline reported.

However, another high-ranking private-equity official said PE firm overpaying is setting a dangerous trend, The New York Post reported.

Josh Harris, co-founder of Apollo Global Management, told attendees at the recent Milken Institute Global Conference that the prices being paid by PE firms in general are at historic highs, the Post reported.

“It is a very treacherous time to invest,” Harris told the Post, noting that the average prices being paid are 11 times debt-to-Ebitda levels.

The pricing bubble is being inflated by a recovered debt market that is making even more cash available. “If the bar is open, it does not mean you should have five drinks,” he noted.

“We question what happens when Q2 goes away and we are heading in that direction,” Harris said.

(Newsmax wire services contributed to this report).

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A handful of Wall Street's most powerful private-equity firms may be preparing to launch a spending spree with their collective $200 billion-plus war chest of funds, Business Insider reports. Private-equity giant KKR Co. recently said that it had a record-high $35 billion...
Private Equity Firms, cash, money, spend
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2016-34-04
Wednesday, 04 May 2016 09:34 AM
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