It The Boston Consulting Group and Nassim Taleb are right, and the latter has been right over the past 2 years where everyone else has been massively wrong, then private equity firms are about to get in line for government bail outs.
In a study by BCG, as many as 40% of the biggest 100 buyout firms may collapse over the next 2 years "as their debt-strapped assets default." We are trying to get some more color on whether any specific firms were actually named (some potential guesses here).
Taleb, who is known for memorable quotes, said "banks are being bailed out, and private-equity firms are going to go next. These people in a bull market look like geniuses. And now they don’t look that intelligent, and it’s going to get a lot worse for them. If the S&P goes down 20 percent from here, what will happen to private equity firms? They’re all under water.”
A PE bailout may be a tough sell to taxpayers, who did not take the news of Thain's taxpayer funded office renovations or Vikram's French private jet too kindly. In the meantime, everyone is fundraising to run with the crowd investing in the phenomenal opportunities of whatever the current asset bubble may be. If everyone is so aggressively looking for distressed opportunities, who don't the healthier PE firms just purchase the equity of the more "troubled" ones - no better distressed asset out there in our opinion.
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