You report that private equity groups are eager to invest a huge amount of “dry powder” that has already been committed to them (“Private equity groups hunt for exit strategies amid $2.6tn cash pile-up”, Report, January 3). Your article informs us that private equity groups, at the same time, have not yet exited investments amounting to $2.8tn.
Private equity groups often engage in “pass-the-parcel” rounds, where they shift investments to one another; as of late this is happening, even shuffling assets between parts of the same group, through so called “continuation funds”, engaging in “merry-go-round” exercises, as Lex in the same issue notes. Exits are an absolute necessity for private equity groups, as they are the only way to keep the merry-go-round alive.
It is not too mischievous to surmise that this near coincidence of amounts — cash that should come from the sale of companies on the exit ramp, and clients’ cash that must be put to use — will lead to an unprecedented amount of such pass-the-parcel “sales cum investments”.
Private equity would be well advised to watch for the risks this practice involves; clients might not take it kindly.
Salvatore Bragantini
Milan, Italy