The breakthrough of private equity in global finance worries

Posted on Dec. 2021 at 19:08Updated Dec 6, 2019 2021 at 19:15

Riskier, and increasingly powerful in global finance, investment funds are warning regulators. In the same sequence, the Bank for International Settlements (BIS) called on Monday to identify the impact of monetary policies, still unknown, on private equity, which has become a central vector for financing the economy, and to regulate non-financial finance. banking.

Starting from nothing forty years ago, these investors have accumulated just under $ 10,000 billion in assets, including 3.180 billion in liquidity to be deployed over the next few years alone, details the BIS in its report. From the injection of capital into companies, with a takeover, they have developed into credit, taking advantage of “relatively weak regulation”.

The capital raised in private debt weighs about half of private equity alone in Europe and the United States now, or nearly $ 1.430 billion (alongside venture capital, real estate and infrastructure). In the front line Apollo, of which more than 70% of the assets correspond to private debt, according to data from the BIS, and funds like Blackstone.

This expansion has been out of the eyes of regulators because of the weak connection of these funds with retail investors, says the BIS. But the situation is changing with the transformation of retirement and savings systems on both sides of the Atlantic, as well as the search for returns at all costs.

Quest for yield

Problem, the impact of monetary policies and stock markets remains largely undetermined on this new “major force” of corporate financing. However, funds have always said they are decorrelated from stock market cycles and volatility, a key argument for their investors.

The BRI partially breaks this myth. Private markets are “just as pro-cyclical as listed markets,” she emphasizes. They multiply acquisitions when quoted market returns are on the rise. And they become more indebted when the value of their assets increases.

Some private equity funds are allowed to take on twice as much debt as the amount of their assets, compared to half for listed regulated asset managers.

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