If you thought private equity funds were big, they are getting much, much bigger. For example, KKR is in the process of raising a US$16.5 billion fund, outstripping the previous record of US$15.6 billion raised by Blackstone earlier this year. And Texas Pacific Group is in the process of raising a similar sort of amount for its latest fund.
For the sake of easy maths, let’s say that capital is in turn geared up by a factor of ten – KKR’s US$165 billion can buy a lot of companies. Or it can buy a few very large companies, which seems to be the more likely outcome.
By the nature of the increased competition among private equiteers for deals (made possible by increased competition among superannuation funds here and to be part of those deals), the medium-sized privatisations are getting harder to find and justify. Thus we can expect the KKRs of the world to hunt elephant more often.
Basically, nothing they think they can rapidly improve is out of reach. Think BHP and just about everything else.
It is becoming a very serious business indeed. Serious enough for the British Financial Services Authority to highlight concerns about financial stability and transparency and disclosure as part of its assessment of the private equity sector, according to James Quinn in the UK Daily Telegraph.
Quinn reports the review to be revealed in the next couple of weeks will stop short of issuing any direct edicts against the industry at this stage – instead highlighting a number of key issues which the watchdog believes should be addressed:
High on the list of the FSA’s concerns is understood to be the growing preponderance of debt in the market as a result of highly leveraged deals.
The FSA is believed to be concerned that such deals have the capacity to affect financial stability in the market place, and also serve to emphasise the general illiquidity of private equity structures. It also wants to quantify how private equity impacts the public market, amidst the growing rise of leveraged takeovers of quoted companies.
Another key area is understood to be the existing disclosure rules, and whether these are best suited to the way the sector works.
It will also touch heavily on transparency, potentially probing the rules surrounding approaches to public companies, and the timing and nature of when such approaches become public.
Amen to that. The handling of disclosure is already a scandal in our market, but no doubt the local watch puppies will get around to thinking about it sometime, well, sometime.