The Smartest Money Has Two Words Of Advice: "Sell Now" (And Is Doing Just That)
Back in April, Apollo's billionaire head Leon Black, one of the most successful private equity investors in history had one message for his audience at the Milken conference: "The Smart Money Is "Selling Everything That Is Not Nailed Down." And indeed it has, as the stock market continued to rush to ever higher records on ever declining volume as more and more retail dumb money returns to stocks ignoring the fact that buying at all time highs always leads to tears. But while comedy financial TV is chearleeding the rally all the way to the bitter end, the smart money is not sticking around.
Yesterday, in the aftermath of first Apollo then Blackstone, it was the turn of that third mega Private Equity shop, Fortress, to "say that now is the time to exit investments as stocks rally and interest rates start to rise. "This is a better time for selling our existing investments than making new investments," Pete Briger, who oversee the New York-based firm's $12.5 billion business said on a call with investors yesterday. "There’s been more uncertainty that’s been fed into the markets." Ironically, this is precisely the opposite of what one will hear on the mainstream media, but such is life: for every smart money seller, there must be a willing sheep led to the slaughter.
Fortress, the first publicly traded buyout firm in the U.S., is preparing holdings for public offerings while struggling to find attractive new deals, Wesley Edens, who runs Fortress’s $14.3 billion private-equity business, said on a conference call with investors yesterday. That environment extends to credit and distressed investments, said Pete Briger.
Private-equity managers from Fortress Investment Group LLC (FIG) to Blackstone Group LP (BX), which made billions by buying low and selling high, say now is the time to exit investments as stocks rally and interest rates start to rise.
Fortress, the first publicly traded buyout firm in the U.S., is preparing holdings for public offerings while struggling to find attractive new deals, Wesley Edens, who runs Fortress’s $14.3 billion private-equity business, said on a conference call with investors yesterday. That environment extends to credit and distressed investments, said Pete Briger, who oversees the New York-based firm’s $12.5 billion credit business.
Their comments echoed remarks from Apollo Global Management LLC Chief Executive Officer Leon Black to Blackstone President Tony James, who said last month the environment is ripe for selling because credit markets are still hot and equities strong. Three rounds of bond purchases by the Federal Reserve, coupled with improving earnings and economic growth, helped propel the Standard & Poor’s 500 Index up 152 percent from its bear-market low in 2009.
It would appear at least someone isn't enthralled with the ridiculous volatility that has engulfed a market that swoons or soars on every algo interpretation of every word uttered by Bernanke.
Speculation about the Fed’s monthly bond purchases has whipsawed stocks since May, when Chairman Ben S. Bernanke first indicated policy makers could begin reducing the stimulus this year if the job market continues to improve.
Fortress' sentiment is nothing new:
"It’s almost biblical: there is a time to reap and there’s a time to sow,” Apollo’s Black said at a conference in April. “We think it’s a fabulous environment to be selling. We’re selling everything that’s not nailed down in our portfolio.”
Black’s New York-based firm, which oversees assets worth $114 billion, generated $14 billion in proceeds from the sale of holdings between the first quarter of 2012 and the first quarter this year.
The industry’s focus on exits has reduced volumes of leveraged buyouts this year, with the number of private-equity deals announced declining 20 percent to 3,047 worldwide from the same period last year, according to data compiled by Bloomberg.
"It’s a difficult environment to find really attractive things when the markets are robust as they are,” Fortress’s Edens said yesterday.
You know there is an asset bubble when even LBO firms that have access to the cheapest long-term credit are just saying no. So just how expensive are assets? At least 1 turn of EBITDA over the average expensive. Likely much more when one normalizes for SG&A and labor force.
The stock market rally helped push up average prices for LBOs to nine times earnings, Black said in April. A reasonable buyout price is less than eight times earnings before interest, taxes, depreciation and amortization, according to consulting firm Bain & Co.
The amusing part is that while Blackstone's made for TV muppets tell what little viewers CNBC has left to buy, the firm itself has never been selling more!
Blackstone, also based in New York, took advantage of the rising markets to sell shares in three companies -- General Growth Properties Inc., Nielsen Holdings NV and PBF Energy Inc. -- and take three public, including SeaWorld Entertainment Inc. (SEAS), in the last quarter alone. The firm, run by CEO Steve Schwarzman and James, last month reported second-quarter economic net income of $703 million, more than triple its year-earlier profit.
“With credit markets hot and equities strong, this is a better time for selling assets than for buying,” James said on call with media on July 18. “Activity levels seem to be shifting from the U.S., which has been our focus over the last couple of years, to Europe, where there’s more distress, and Asia and emerging markets, where liquidity issues are arising.”
And finally on the topic of that other asset bubble, housing:
Blackstone is also lining up real estate investments for sales in the next two years. Among its holdings are global hotel chain Hilton Worldwide Inc. and office properties from its $39 billion purchase of Equity Office Properties Trust in 2007.
“There will continue to be a growing series of real estate realizations as we go forth over the next 12 to 18 months,” said James.
For those unsure, "realizations" mean "sales." And so it goes on, with the Chairman continuing to provide just the right bubblyness for the smart money to get out and leave Joe Sixpack as the ultimate bagholder. Then again this is nothing new: it happens in the final phases of every asset mania.
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