US private equity giants quadruple their profits

Posted Feb 11 2022 at 7:30 PM

Explosion of profits on Wall Street among the global heavyweights of private equity. In one year, Blackstone, KKR, Carlyle and Apollo quadrupled their profits to $15.2 billion, and they tripled them from 2019, before the pandemic hit. What further comfort Gary Gensler, the boss of the SEC, in his charge against the funds: “increasingly large, complex and numerous”, these investors and the hedge funds, which together accumulate more than 18,000 billion dollars in assets, develop “certain practices contrary to the public interest”, he criticized on Wednesday.

The American financial policeman wants to ban them from certain types of commissions charged to their clients, and impose new transparency rules on their fees.

In the eyes of the SEC, the issue is not only the very rapid growth of the sector. It is also where the money comes from, argued Gary Gensler, namely mainly retirement funds, and behind them “teachers, firefighters, municipal workers, or even students”.

While in twelve months, these four global players alone have grown by 578 billion dollars to cross 2,000 billion in assets, the boss of the SEC therefore wants to tackle the comfortable revenues of the sector. An annual mass that he estimates at 250 billion dollars in commissions paid, including hedge funds.

Cap on 1,000 billion

“It’s really a wake-up call for the industry,” reacted Adam Kanter, an associate of Mayer Brown to the “Financial Times”. Intense industry lobbying is already anticipated in Washington even before any conclusions are drawn from the SEC’s open consultation on its proposals. But until now, private equity players, by highlighting the tens of thousands of jobs they finance, have rather managed to make the American administration bend.

Not enough in any case to tarnish the growth expectations of this sector with double-digit returns and towards which rush, disappointed by the stock market, investors, small holders or American employees managing their retirement.

Number one in private equity, Blackstone alone crossed 880 billion dollars in assets, and is aiming for 1,000 billion this year, four years before the announced date. Its annual profit was multiplied by 5.6 in one year, to 5.86 billion dollars. He took over from KKR the head of the most profitable fund in the market.

Jonathan Gray, its leader, even says he is not afraid of the resumption of inflation. Blackstone is heavily invested in the technology sector and in real estate, the heart of its portfolio, and the American firm judges that it can increase the rents of assets such as warehouses used for e-commerce, at a rate of two to three times that of inflation.

Numbers two and four in the sector have seen even more rapid growth: Apollo has multiplied its profits by 12 and Carlyle by 8. Joseph Bae and Scott Nuttall, the leaders of KKR, who have grown their assets by 87%, in the midst of a transfer of power from the godfather of the industry, Henry Kravis.

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