"Hands criticises 'pass the parcel' inflation effect" - FT.com
"Guy Hands, one of Europe's top private equity bosses, has criticised "pass the parcel" deals, in which buy-out groups sold companies to each other for ever increasing prices, for inflating the bubble that left investors facing big losses."
"'We saw an increasing number of pass-the-parcel transactions between general partners [in private equity firms], where limited partners [investors] essentially retained the same asset while paying fees and carry each time it changed hands,' he said."
What is most puzzling is why the largest, and presumably most influential, limited partners in private equity funds permitted this to happen. As noted by the esteemed Mr. Hands, many LPs -- who had investments in both the selling and the buying PE firms -- were essentially paying 20% carry for the privilege of moving their investment from their left pocket to their right. Surely there must be some cases where an LP investor actually increased his net investment in a particular company and paid a carry on the step-up in value.
If anyone has an example, please let me know.
You are a very smart man.
ReplyDeleteBabu Bhatt