What do Kohlberg Travis Roberts, Texas Pacific Group and Apollo all have in common? They are all private equity firms thinking about following Blackstone into going public and allowing us all the opportunity to share in their phenomenal success with an initial public offering (IPO). After all, the Chinese have just given Blackstone 3 billion dollars out of their 1.2 trillion foreign reserves so they obviously think it will be a good investment. So why do I think the private equity juggernaut could be about to crash.
Call me cynical, but in investing whenever the retail investor is encouraged to buy into a booming market sector, its at a time when the big has has already been there and scooped the cream. In the case of private equity firms, their biggest returns have been made when interest rates were lower. The era of cheap money has had to end in order to squeeze out inflation and recent rate increases have only added to their extraoridinary debt burden.
I know interest rates will soon start to peak and begin to fall again. So why can’t I just accept that these companies have the Midas touch and will deliver and share out some of their extraordinary returns? Perhaps I’ve been involved in the markets for too many years, but I’ve seen it all before and there will be tears before bedtime!