GLOBAL - Baring Asset Management, has warned the private equity and leveraged buyout (LBO) market will collapse in the next 12 to 18 months.
Speaking at the Baring spring conference in London yesterday, Marino Valensise, chief investment officer, said: "We are going to have at least a few surprises in the LBO / private equity sphere."
He added: "We don't know who the losers will be here, but it is definite that something is going to happen to that market."
Percival Stanion, head of asset allocation at Baring Asset Management, also argued private equity is "a disaster in the making".
According to Valensise, leverage is giving increasingly less benefits, while each dollar of leverage gives less profit.
"The trend is therefore that banks have started leveraging their balance sheet more," he said, adding: "This is not sustainable in the long-run."
Valensise also said the US Federal Reserve has shifted its focus on economic growth, rather than keeping inflation down: "As long term investors we do not welcome the choice that the Fed has made."
Barings estimates if the system decides to deleverage, $2trn of asset may need to be sold.
"We have to be very careful with what has been bought on a leverage basis in the past, because that will be what is sold next," he concluded.
Percival Stanion added other negative factors, for instance, are the US recession will take longer than expected to recover from than expected, while there are also more inflationary pressures.
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