Private Equity Bubble
Private Equity Bubble
Private Equity and Bubbles in the Last Decade
The Deal, along with some major private equity players, has taken a look back at the last decade and what they expect for the future of private equity. Richard Friedman of Goldman Sachs remembers when GS’s private equity arm got caught up in the tech bubble and he explains why he does not expect private equity to repeat that mistake. Yet many firms in the industry have chased hot sectors only to find the bubble burst.
The Deal’s David Carey sees the last decade as two large bubbles which brought incredible returns for some savvy (and some lucky) investors and left other private equity managers scratching their heads wondering how they didn’t see it coming. According to Carey there are two simmilarities in the bubbles: “First, as David Rubenstein (pictured), co-founder of the Washington buyout giant Carlyle Group, points out, the industry is very much “a captive of the markets” and “not countercyclical.” And second, the titans of private equity, or a significant portion of them, are just as prone as the Average Joe to get caught up in investment fads and fashions and to emulate the unenlightened, noncontrarian masses.” This is a pretty honest remark for Rubenstein, admitting that he and his private equity colleagues do not have any real advantage that protects them from bad investments.
It’s interesting reading some of these stories and insights gained over the last ten years, like Global Crossing, the telecom firm that attracted a good amount of private equity investment despite some glaring red flags. One common problem that plagued the industry in the dot-com bubble was a lack of understanding by private equity firms of the businesses they were sinking capital into. This is a big problem that we’ve covered on this blog where investors will chase a hot industry of which they have no prior knowledge. Not only is it hard to manage an investment in a sector you do not understand but it also makes your firm highly vulnerable because you probably won’t predict a decline in the industry. There are lessons to be learned from the private equity veterans that can help today’s new firms avoid old mistakes.
Read the whole story, Between Reality and the Mirage.
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Tags: private equity bubble, buyouts bubble, private equity bubble burst, private equity venture capital, venture capital dotcom
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Tags: buyouts bubble, private equity bubble, private equity bubble burst, private equity venture capital, venture capital dotcom
