Private equity faces a ‘value crisis’ due to inflated prices

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“You’ve seen the S&P down 20%, the Nasdaq down 30%, some tech companies down 50%, 70% and more,” Kleinman said. “That doesn’t mean they’re bad companies, it just means that the starting point for valuations didn’t make much sense.”

Private equity has been among the biggest winners in finance over the past decade, with investors deploying hundreds of billions of dollars into the asset class in search of yield. The influx of capital combined with readily available leverage led to a trading frenzy and forced asset prices to record highs.

With interest rates rising and the likelihood of a recession growing, the high prices previously paid for assets are likely to begin to erode returns.

“I think private valuations will fall,” Kleinman said. “The private equity industry needs to return capital to investors. The prevailing market prices when you go to sell these companies will determine what that shake-up looks like.”

The tightening economy will also make it more difficult for private equity firms to sell their assets or list them on public exchanges in the near term as investors adjust price expectations, according to Nikos Stathopoulos, partner, President of Europe and member of the management. BC Partners committee.

“Everyone is a bit of a wait-and-see to see what impact this will have, mainly on valuations,” Stathopoulos added in a separate Bloomberg TV interview. “As in everything, you have to adjust the valuation expectations of buyers and sellers and they have to converge at some point and sometimes that takes time.” Still, he said BC Partners continues to seek investments in areas such as healthcare and telecommunications that he sees as more shielded from consumer trends.

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