Private equity executives wonder about their own success

At a Berlin tech club turned corporate events space, Nile Rodgers, the hit-maker behind national anthems ranging from David Bowie’s “Let’s Dance” to “Like a Virgin” by David Bowie. Madonna, staged the 1979 classic “Good Times” with his band, Chic.

As the music blared at the invite-only party on the sidelines of the SuperReturn conference, private equity and venture capitalists looked skeptical about how much money they’d made in the big money. Translate.

Even Rodgers himself is caught up in the orbit of private equity: the business he co-founded with music mogul Merck Mercuriadis sell shares to Blackstone last month.

“I didn’t expect things to come back so dramatically” since the early days of the Covid-19 crisis, said David Blitzer, the billionaire Blackstone executive who co-owns the Crystal Palace football club. .

When industry traders have left SuperReturn before collect In February 2020, some were quietly preparing for a reckoning, as their highly leveraged investment firms faced prolonged economic uncertainty.

The chart shows US listed private equity firms with a record amount of 'dry powder' to invest in

But sweeping crisis-handling measures by central banks and massive government stimulus programs have instead helped propel the industry to new highs, providing easy access to cheap debt. . new transaction, keep struggling companies afloat and even self-pay dividends. Blackstone, KKR, Apollo and Carlyle posted record earnings this year.

Private equity is “getting a lot of benefits from politicians. . . It’s the hottest market I’ve seen in my entire career,” said Jan Stahlberg, who runs the Trill Impact acquisition team and has worked in private equity since 1995, in a panel discussion. another at the luxurious InterContinental hotel.

But amid the jubilation, karaoke, five-course meal – and after-dinner speeches by former German chancellor Gerhard Schröder and former MI6 leader Alex Younger – there is a growing whisper of threats to with industry success. Inflation, inequality, labor shortage and supply chain disruption frequently appear in conversations and interviews.

“One hundred percent of the companies in our portfolio are grappling with the question of ‘how to find the right workers to come in,’ said Joe Osnoss, managing partner at Silver Lake. place? “.

“The reason it’s so important is that the market is leaning on growth. . . Everyone in my company says, yes, we can grow 15, 20, 25% next year, as long as we can hire at these rates. “

Some traders worry that the industry’s explosive growth is lurking in the face of problems. Philipp Freise, co-head of European private equity at KKR, likened the use of private equity debt to the way children approach a box of chocolates placed in front of them.

“It’s tempting to eat them all at once. . . but that wouldn’t be the right thing to do,” he said, adding that some parts of the acquisition industry are thriving.

The combination of overvalued valuations, large capital inflows and high leverage, he said, created the risk of a “dotcom boom in financial crisis”.

The big fear among the ‘limited partners’ at the conference is that low interest rates and stimulus programs are upending the performance of poorly performing private equity firms © Andreas Schoellhorn

Some fear a backlash. “We are benefiting greatly [but] a lot of people have suffered during this crisis,” said Stahlberg. “That would be a political pressure.” An audience applauded.

SuperReturn is a more naked transactional gathering than last month’s Milken Institute Global Conference jamboree in the United States, with acquisition groups racing to meet as many potential investors as possible. Representatives from organizations with money to deploy – known as “limited partners” – wear badges with a black star printed under their name, so they can be targeted more effectively.

The great fear among attendees, on whom private equity is based, is that low interest rates and government stimulus programs have boosted the performance of private equity firms that operate. poor, making it difficult to allocate capital.

“They all think they are geniuses because their companies are doing so well,” one person said. “But without central bank policy, things would be very different.”

One notable difference from last year’s event was the absence of a number of industry celebrities, such as Blackstone’s Stephen Schwarzman and Apollo’s Leon Black.

Black stepped down as CEO of Apollo this year after he was found paid $158 million to the late sex offender Jeffrey Epstein.

His position in Berlin is attributed to Scott Kleinman, Apollo co-chairman, who has warned that the sky-high valuations at which private equity firms have taken deals signal a “state of collective delusion.” “.

Another private equity billionaire who has been at the center of a scandal since the previous meeting, however, attended. Robert Smith, founder of Vista Equity Partners, struggled to get through solving a crime investigation last year when he admitted to hiding $200 million from overseas taxpayers and evading about $43 million in taxes

A senior figure from an institution that invests in private equity groups was amazed at the speed and excitement of Smith’s plan to go ahead and raise a large new fund. Even Michael Milken, who was pardon He noted: 30 years after being convicted of securities fraud, no outside money management is allowed.

As Smith comfortably participates in an on-stage interview, without any questions asked about the criminal case, his strategy seems to be working. “Do you ever take a moment to enjoy that moment?” the interviewer asked.

Smith’s response: “I’m doing it right now.”

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