Friday, June 25, 2010

Private Equity sitting on half a trillion dollars, about to be wasted

Five Hundred Billion Dollars in Cash has been given to Global Leveraged Buyout Funds. It is sitting waiting for a good deal, buy an existing company at a hopefully low price. This money will not go to make one new windmills. It will not go to research new medicines. It will not build reliable electric distribution systems or water treatment plants for the developing world. The buyout companies are under pressure--if they don't buy something soon, the investors will feel, rightly, that their money isn't earning anything and walk away. If they under presure, overpay or buy a lemon...

Much of these funds are from Pension Funds and insurance companies. Others are from wealthy individuals. (I have not been able to get a percentage break down of the source.)

Source: The New York Times Thursday June 24th 2010, Page A1 and A3, CLIX, No 55081.

For a future Thoughtful Thursday, "The Economics of Private Equity Funds" Andrew Metrick, Review of Financial Studies Ayako Yasudo, 23(6), 2303 to 2341.

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