The Next Financial Crisis? Private Equity Leverage

Private equity firms have been increasingly adding another layer of debt to their complex borrowing arrangements, raising concern among some investors about potential risks to the wider industry and the financial system.
In this episode, Director of Corporate Finance Stephen Barnett explains how the PE business model works, how it's impacted by rising interest rates and what the potential dangers are to the wider system.
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#privateequity #finance #investing

[@user-sh9fu7cy1n]

Unsolicited but constructive criticism: add topic timestamps. Books have chapters, even movies split up into chapters, its a favor to the viewer to know what theyre getting into

[@judithwyer389]

It's Lina Khan not Linda. You really ought to know her proper name.

[@steve0680657]

Great analysis into the current PE market and macro situation. Brilliant as always.
Ps. on side note it might be worth looking at a way to increase the audio level of the recording +10%? before uploading (feels like you're quieter than other podcasts)

[@AmplifyTradingHUB]

Hi Steve, thanks for listening! On the video, there's not much we can do but if you listen on Spotify or Apple podcasts directly it might be better for you 👍

[@youssefsabri4013]

I cannot agree more on the PE. Previous CIO of Amundi, French Asset Manager, called the PE market a Ponzi Scheme as exits were only from one PE to another... I think the collapse is coming, the question is when and what would be the trigger...

[@sirus312]

This is not the same private equity as years ago. They pivoted, long gone are the days of super overleveraged junk companies

[@aboucard93]

When Private equity companies lend money to other PE companies whose money are they using? Are using the teachers and pensioners funds or they using their own money?

[@ypcllc]

Pensions are definitely used !

[@sirus312]

It seems like low rates are coming and will be another tailwind to private equity.

[@mghh448]

A ponzi scheme.

[@jameskuckkan2326]

I was reading a GaveKal paper from twenty years ago that talked about how assets are the new currency between companies and countries. Where we used to have gold, now we have oil, other resources, and companies to trade with.
The paper explained that in certain situations, "marginal players" are wiped out, and absorbed by larger entities.
With the amount of assets at stake in Private Equity, what incentive do these firms have to prevent consolidation of smaller companies, under themselves? If, instead of 10 or fifteen players, there can be just two or three, what is preventing these firms from using the strategies you described to wipe out competitors and acquire the largest market share possible? Even if the total AUM shrinks in the Private Equity space, being one of three instead of one of ten, or fifteen, may be an attractive prospect to some. Are there any controls to this kind of behavior?

[@leyladenim8105]

As auditor, I agree, I have seen quite weird structures where I am wondering, what they plan with the target which they bought with high leverage, the investment strategy does not make sense at all at current interest rates. I concluded, they speculate on decreasing interest rates and increasing revenue. But I don't see why the revenue should increase and interest rate decrease.. Once they don't get any money from the banks, investors and business cannot make up the difference, they will go bust.

[@kinggozie]

great conversation, thoroughly enjoyed the analysis of PE and the possible dangers that loom around it.

[@dawnpetitt8162]

Reality check no one should ignore.

[@judithwyer389]

Smoke and mirrors.

[@kristibrown1164]

so it's a ponzi scheme

[@rosalindmartin4469]

LINA KAHN

[@Daniel-dg1yw]

This is a great episode 👌