The latest asset class that everyone wants is secondaries: vehicles that focus on buying existing portfolios of private equity holdings from investors who want to exit before funds mature.
Secondaries also step in to buy out existing investors when fund managers want to continue holding an asset beyond the life time of the fund. The latest deal: In mid-September CVC Capital Partners agreed to acquire $8 billion secondary buyout specialist Glendower Capital.
The industry’s drive into different investment strategies has helped push overall assets under management at major managers to levels exceeding many leading mutual fund houses.
With bigger funds come bigger deals. Private equity is steadily creeping into transactions that were previously the preserve of big businesses or sovereign wealth funds.
By clubbing together, several PE funds and key investors can pool resources to take on ever more ambitious targets. That’s what happened in June when Blackstone, Carlyle, and Hellman & Friedman, alongside Singapore’s GIC Pte in June announced a majority stake in Medline Industries Inc. in a deal worth more than $30 billion.
Also aiding the rise of ever larger deals has been the proliferation of private credit funds that have stepped in post-financial crisis to replace banks in some of the more riskier lending areas.
The U.K. has been a center of deal activity. Thanks to a permissive takeover code, a hands-off approach from government, and cheap valuations, the U.K. is on track for its busiest year of private equity deals since the financial crisis.
At present Clayton Dubilier & Rice LLC, Fortress Investment Group and others are trying to buy blue chip stalwart Morrison. Meanwhile, U.K. authorities are probing another PE deal, a bid by Advent International Corp-owned Cobham Ltd. to buy rival Ultra Electronics Holdings Plc, on national security grounds.
Trouble Ahead
To be sure, while there is little at the moment to stop the flood of money into private equity, the sector’s growth is drawing more attention from regulators and politicians.
In the U.S, senior Democratic Party members are debating measures that would make it harder to add leverage on deals, as well as end tax breaks for fund managers. While in the U.K., a mid-market tabloid’s on-going campaign against private equity deals shows how the once obscure industry is starting to attract more hostile media.