Some parts of the private equity market are beginning to resemble a Ponzi scheme, according to the chief investment officer at Amundi, one of Europe’s leading wealth managers.
In his virtual press conference yesterday, Amundi CIO Vincent Mortier said the volume of money raised by private equity houses in recent years has pushed up valuations and prompted companies to buy assets from one another at inflated prices.
“We’re in a big bubble in private markets,” Mortier said. “If I take an extreme analogy, maybe the private equity market looks like a Ponzi scheme — a pyramid — in some parts.”
Globally, private equity has been one of the biggest winners from rock-bottom interest rates over the past decade as investors turned to the asset class to boost returns. According to a report by consulting firm Bain & Co, buyout firms invested a record $1.1 trillion last year.
According to its annual report, at the end of 2021 Amundi had invested around 11 billion euros in assets in private equity. This is only a small part of the total assets under management of EUR 2 trillion, which makes the company with 100 million customers one of the largest investment companies in Europe and one of the top 10 global players.
“The vast majority of deals are currently being made between private equity players,” Mortier said. “One private equity player sells to another who is happy to pay a high price because it has attracted a lot of investors.”
This ability to sell to competitors has allowed companies to avoid depreciating in the value of the assets they own, despite a broader sell-off in public markets.
“Of course, if you know you can sell your stake to another private equity house for a multiple of, say, 20, 25, or 30 times the profit, then you’re not going to write off your book,” Mortier said . “And that’s why I’m talking about a Ponzi, because it’s a circular thing.”
Nonetheless, Mr. Mortier also said that with the right managers and private debt, there are good returns to be had in the private markets.
“I’m not saying that private equity is bad — there are some very, very good opportunities,” he said. “But sometimes there are no miracles.”
https://www.independent.ie/business/world/amundi-executive-says-some-private-equity-valuations-are-comparable-to-ponzi-schemes-41711283.html Amundi manager says some private equity valuations are like “Ponzi schemes”.