Mike Rivers' Blog Headline Animator

Wednesday, June 06, 2007

Private equity buyout bingo

Will the private equity market continue to run as red hot as it has been?

William Hester, CFA of Hussman funds presents a fascinating analysis where he shows that the risk-to-reward ratio is thinning for private equity buyouts.

As Herb Stein (Ben Stein's father) is famous for saying, "If something cannot go on forever, it will stop." I have no idea when the buyout binge by private equity will peter out, but I can guess that interest rates going up will have something to do with it, and that it won't be a very fun time to be invested in riskier stocks and bonds.

Nothing in this blog should be considered investment, financial, tax, or legal advice. The opinions, estimates and projections contained herein are subject to change without notice. Information throughout this blog has been obtained from sources believed to be accurate and reliable, but such accuracy cannot be guaranteed.

1 comment:

ilanit said...

Los Angeles business investors fund performance is not indexed to inflation. In 1980s many risk free rates round the world were in double figures. Hedge funds in those days HAD to produce much higher returns to be worth investing in. A few strategies do benefit from rising rates; for example managed futures and short biased funds have large cash balances. Put option prices drop as rates rise so some hedging costs reduce. But some hedge fund strategies are negatively exposed to rising rates, costlier credit, steeper yield curve twists and shifts and less reliable interest rate differentials between currencies.