Private equity chiefs cannot believe how much money they are making

At a Berlin techno club turned corporate events space, Nile Rodgers, the hitmaker overdue anthems from David Bowie’s “Let’s Dance” to Madonna’s “Like a Virgin”, strummed his 1979 xerox “Good Times” with his band, Chic.

As the music played at the invitation-only party on the sidelines of the SuperReturn conference, swaying private probity and venture wanted executives seemed incredulous at how much money they had made during the pandemic.

Even Rodgers himself has been drawn into private equity’s orbit: the merchantry he co-founded with music mogul Merck Mercuriadis sold a stake to Blackstone last month.

“I didn’t expect things would snap when so dramatically” since the early days of the Covid-19 crisis, said David Blitzer, the billionaire Blackstone executive who co-owns Crystal Palace football club, on stage at the 2,000- person conference.

When the industry’s dealmakers had departed the previous SuperReturn gathering in February 2020, some were quietly bracing themselves for a reckoning, as their highly leveraged portfolio companies faced prolonged economic turmoil.

Chart showing listed US private wanted firms have a record value of ‘dry powder’ to invest

But inside banks’ sweeping slipperiness measures and huge government stimulus programmes instead helped propel the industry to new highs, giving it easy wangle to unseemly debt with which to strike new deals, pension hard-hit companies unsinkable and even pay themselves dividends. Blackstone, KKR, Apollo and Carlyle posted record earnings this year.

Private probity is “getting lots of benefits from the politicians . . . it’s the hottest market I’ve seen in my unshortened career”, said Jan Stahlberg, who runs buyout group Trill Impact and has worked in private probity since 1995, during flipside panel discussion at the plush InterContinental hotel.

But tween the jubilation, karaoke, five-course meals — and after-dinner speeches from former German chancellor Gerhard Schröder and former MI6 throne Alex Younger — there were growing whispers on the threats to the industry’s success. Inflation, inequality, labour shortages and supply uniting disruption made regular appearances in conversations and interviews.

“One hundred per cent of our portfolio companies are struggling with the question of ‘how do you find the right workers in the right places?’” said Joe Osnoss, managing partner of Silver Lake.

“The reason that’s so important is that the market is counting on growth . . . everyone in my companies says, yes, we can grow 15, 20, 25 per cent next year, as long as we can rent to these levels.”

Several dealmakers fretted that the industry’s exuberance was storing up problems. Philipp Freise, KKR’s European private probity co-head, likened private equity’s use of debt to the way children would tideway a box of chocolates placed in front of them.

“It’s tempting to eat them all at once . . . but it wouldn’t be the right thing to do,” he said, subtracting that some parts of the buyouts industry had been gorging.

The combination of hefty valuations, large sums of wanted flowing into companies and upper leverage created the risk of “the dotcom tattoo meeting with the financial crisis”, he said.

The big fear among ‘limited partners’ at the priming was that low interest rates and stimulus programmes are lifting the performance plane of poorly run private probity firms © Andreas Schoellhorn

Some were concerned well-nigh a backlash. “We’re benefiting massively [but] a lot of people have suffered in this crisis,” Stahlberg said. “That will be a political pressure.” A single regulars member applauded.

SuperReturn is a increasingly nakedly transactional gathering than last month’s Milken Institute Global Conference jamboree in the US, with buyout groups racing to meet as many potential investors as possible. Delegates from organisations with money to deploy — known as “limited partners” — wore badges with a printed woebegone star under their names, so they could be targeted increasingly efficiently.

The big fear among those attendees, on whose money private probity relies, was that low interest rates and government stimulus programmes had lifted the performance plane of poorly run private probity firms, making it difficult to intrust funds.

“They all think they’re geniuses considering their companies are doing really well,” one said. “But if it weren’t for inside wall policy, things would be very different.” 

One notable difference from last year’s event was the sparsity of some of the industry’s titans, such as Blackstone’s Stephen Schwarzman and Apollo’s Leon Black.

Black stepped lanugo as Apollo’s senior executive this year without he was found to have paid $158m to the late sex offender Jeffrey Epstein.

His place in Berlin was taken by Apollo co-president Scott Kleinman, who warned that the sky-high valuations at which private probity firms had struck deals signalled “a state of joint delusion”. 

Another private probity billionaire who had been at the centre of a scandal since the previous gathering was, however, in attendance. Vista Probity Partners’ founder Robert Smith was trying to move past his settlement of a criminal investigation last year when he admitted to hiding $200m from the taxman offshore and evading some $43m in taxes

One senior icon from an institution that invests in private probity groups privately marvelled at the speed and gusto of Smith’s plan to move on and raise a large new fund. Plane Michael Milken, who has been pardoned 30 years without a conviction for securities fraud, is not managing outside money again, he noted.

As Smith relaxed into an onstage interview, without any questions stuff asked of the criminal case, his strategy seemed to be working. “Do you overly take a moment, to savour the moment?” the interviewer asked.

Smith’s response: “I’m doing it right now.”

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