Private Equity industry and the buyback dilemma

The seven publicly listed U.S. alternative asset managers are facing a complex decision: how to put their cash to use. The news is that, in addition to the usual buyout picking process, some firms are now considering investing in their own stock through a buyback. With global markets flailing, the share prices of the big buyout firms have underperformed the S&P over the past 12 months by 31%. Indeed, while the S&P 500 declined 13% since its May 2015 peak, Blackstone fell 43%, Carlyle 61%, Apollo 39%, KKR 45% and Fortress 47% in the same timeframe. The repurchase plans of KKR, Apollo, Carlyle, and Fortress total more than $1bn, while Blackstone and Oaktree decided to avoid the stock buyback for now.

Chinese activism in Europe on the rise

Over the last few years, investors and business got accustomed to see China as a major foreign investment destination but now the situation seems to be turning around. In 2015, the level of Chinese outbound investment almost reached the amount of inbound foreign investments ($118bn compared with $126.3bn).

The Growth of Shadow Capital in the PE industry

Starting from last year, capital allocation schemes that are hybrids of direct investment and limited partnership, namely “Shadow Capital”, have become increasingly appealing among participants of the Private Equity industry. This way of investing allows the Limited Partners to employ their resources benefiting from the expertise and experience of PE funds and to gain a direct foothold in the private firms’ capital. Most notably, Shadow Capital accounted for 25.6% of total capital committed in PE investments in 2015, surging from the 17.5% average it accounted for in the period 2009-2014 (see table below).

Where Private Equity meets fashion

On January 5th, Catterton, the leading consumer-focused private equity firm, together with LVMH and Groupe Arnault, respectively, the largest luxury conglomerate in the world and the family holding company of the founder, announced they have entered into an agreement to merge part of their business to create a new entity, named L Catterton.