Does anybody else see the irony in this story in today’s WSJ about the prospect of private equity firms going public so widows and orphans can get in on the action?
In recent weeks, investment bankers from Morgan Stanley and Goldman Sachs Group Inc. have approached top private-equity firms including Carlyle Group, Texas Pacific Group and Kohlberg Kravis Roberts & Co. with a novel idea: taking their partnerships public.
I know these guys. They are very smart. These are great business–for them. They make great investments–for their partners. But rest assured, if they think it’s a good idea to sell a piece of their own companies to you, it’s a really bad idea to buy it.
It is evidence, though, that the markets have gotten silly again. Yield-starved investors have crammed tons of money into hedge funds (just wait; they’ll be the next IPOs), who have been exhibiting the type of gaping behavior toward lenders that baby birds show mother birds returning to the nest with a worm. Only today, hedge funds are gobbling up anthing with current yield, most notable (relatively) high-coupon leveraged loans. Banks and mezzanine lenders are as aggressive today as they were in 1999.
This is great for short-term growth–today’s wimpy GDP number notwithstanding. But it’s loading the pipeline with paper that’s not going to look so good in 2 years or so.
Warren Buffett tells us don’t ask the barber if you need a haircut. Don’t buy the barber shop either.
JR
