Some parts of the private-equity market are beginning to resemble a Ponzi scheme, according to European asset manager Amundi SA’s chief investment officer.
Vincent Mortier said in a virtual press briefing Wednesday that the volume of money raised in recent years by private-equity houses had driven up valuations and incentivised firms to buy assets from one another at inflated prices.
“We are in a big bubble in the private markets,” Mortier said. “If I take an extreme analogy, for some parts, the private equity market may look like a Ponzi scheme, a pyramid, in a way.”
Private-equity globally has been one of the biggest winners of rock-bottom interest rates over the past decade, as investors have turned to the asset class in a bid to boost yields. Last year saw buyout firms invest a record $1.1 trillion in new deals, according to a Bain & Co report, buoyed by strong fundraising and mounting levels of unspent capital.
Amundi had around 11 billion euros ($12 billion) of assets invested in private equity at the end of 2021, according to its annual report. That’s a small portion of its 2 trillion euros in total assets under management, which make it one of Europe’s biggest investment firms.
“The vast majority of deals are currently done between private equity players, “ Mortier said. “One private equity player will sell to another one who is happy to pay a high price because they have attracted a lot of investors.”
That ability to sell to peers has enabled firms to avoid marking down the value of the assets they own despite a broader selloff in public markets.
“When you know you are able to exit your stake to another private equity house for a multiple of, let’s say, 20, 25 or 30 times earnings, of course you won’t mark down your book,” Mortier said. “That’s why I’m talking about a Ponzi because it’s a circular thing.”
Still, Mortier also said there are still good returns to be made in private markets with the right managers and in private debt.
“My point is not to say all private equity is bad at all, there are some very, very good opportunities,” he said. “But sometimes there are no miracles.”
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