This Is What Happens When Private Equity Firms Run Out Of Things To Buy

Tyler Durden's picture

What do you do when you're part of an industry that has levered up $100's of billions of dollars in investor capital and paid a handsome premium for pretty much every asset available all while "excess cash sits on the sidelines" because there are just no deals left to do at remotely attractive valuations?  Well, if you're Investindustrial, a European private equity fund founded by Italian dealmaker Andrea Bonomi, then you simply raise a new fund to buy all the investments of your old fund.

And while that may sound like a joke, unfortunately it's very true.  As the Wall Street Journal points out today, Bonomi has recently raised $800mm to buy assets that he initially acquired via a $1.1 billion fund originally raised in 2008. 

All of which raises a number of important questions like how exactly are valuations set for such a deal in the absence of a distinct buyer and seller negotiating a fair, market clearing price?  Presumably Bonomi tested the market for his assets but simply didn't like the valuations he was offered?  If so, how could new Limited Partners ever possibly get comfortable with the valuations paid for assets being purchased from the old fund?  After all, the ole "mark to model" methodology didn't work out so well for the Dallas Police and Fire Pension, among others.  

And then there is the question of fees.  Surely, LPs wouldn't be willing to pay '2 & 20' for the runoff of an existing portfolio?  If so, sign us up.



Of course, according to the WSJ, Bonomi's effort to buy his own prior investments has nothing to do with gaming fees but is rather just a creative way to be more competitive with sovereign wealth funds that don't have term limitations on their funds...and if you believe that then Bonomi, a man who typically only sells assets to himself, would very much like to offer you the once in a lifetime opportunity to buy some ocean front property in Oklahoma. 

Buyout firms face increasing competition from patient investors like sovereign-wealth funds. One has found a way to play them at their own game: Investindustrial, a European buyout firm, is creating a new fund to buy €750 million ($800 million) of assets it already owns.


Investindustrial, founded by Italian dealmaker Andrea Bonomi, has decided on this novel course of action as it responds to greater competition for assets from institutions such as sovereign-wealth funds, which don’t have restrictions on how long they can own companies. The competition is pressuring buyout firms to devise new ways to own companies.

Moreover, the decision is in no way related to poor returns.  In fact, the primary motivator for recycling their old portfolio, at least according to the head of investor relations at Investindustrial, is that returns have been so amazing that it just makes sense to hold on to take advantage of further price appreciation. 

Historically, buyout specialists took pride in their ability to turn around the fortunes of ailing companies and sell them for a big profit within five years.


“There used to be no alternative to selling,” Carl Nauckhoff, head of investor relations at Investindustrial, said in an interview.


Investindustrial’s move to hold onto Port Aventura for longer comes as fierce competition is pushing up prices for companies, meaning it increasingly makes more sense to hold on to assets than to sell. Some sovereign-wealth funds and pension funds—traditional investors in buyout funds—are increasingly competing directly for assets. And they can hold them for as long as they want. In response, buyout firms like New York-based Blackstone Group LP are raising longer term funds so they can own companies for more than the traditional 10-year maximum.

Meanwhile, as Lazard notes, it's only a matter of time before other funds attempt to copy Bonomi's "innovative" approach to private equity investing. 

The deal could mark the start of a new trend because the increasing size of the buyout industry means many more funds are coming to the end of their lives than in the past, said Pablo de la Infiesta, a banker at Lazard Ltd. who advised on the transaction.


“Investindustrial has set a new direction,” Mr. de la Infiesta said in an interview. “I think everybody who has assets sitting in a fund that is coming to the end of its life will be thinking about it.”

Truly genius plan if we understand it correctly.

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south40_dreams's picture

The maggots start feeding on each other


Shemp 4 Victory's picture

Something smells very Corzine-like.

flicker life's picture
flicker life (not verified) xythras Mar 14, 2017 2:38 AM

I'm making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do...

small axe's picture

boy like him with a mouth like that will do right well

TheEndIsNear's picture

Excellent synopsis. Best first post I've seen.

spicedune's picture
spicedune (not verified) Mar 13, 2017 8:12 PM

this stuff causes consumers a massive headache

hotrod's picture

Is this like me getting financing set up in my LLC to buy my own house for a market premium because I dont like the price I can get for it.

Donald J. Trump's picture

My first thought was they were getting the same investors to buy from themselves.  I guess that would be like refinancing your own home and cashing out when tuhe value is up.  Or like the Chinese selling their houses to each other in Vancouver, each time for more money.  Bonomi probably doing it to cash in on fees again though.

red1chief's picture

You need to bribe some of your local politicians, who will then put some pension money into "alternative investments", part of which will just happen to be your LLC. Then when your house turns out to be crap, put the blame on the "greedy workers" for demanding the pension they were promised.

BlindMonkey's picture

Charles Ponzi...Is that you??

TeethVillage88s's picture

This is what happens Larry! Do you see what happens, Larry! This is what happens when you fuck with other mens property!

"This Is What Happens When Private Equity Firms Run Out Of Things To Buy"

Herodotus's picture

Why don't they just buy gold?

hotrod's picture

With all this money sloshing around it seems a few would.

HRH Feant's picture
HRH Feant (not verified) Herodotus Mar 13, 2017 8:48 PM

Liquidity is slower. Easier to market a proven con to draw in more suckers.

TeethVillage88s's picture

Hey these asshole don't even know where the real money is:

2014 federal Outlays Training & Employment Services = $3.10 Billion
2014 federal Outlays Office of Job Corps = $1.59 Billion

Total—Department of Veterans Affairs Outlays 2016 = $180 Billion
Total—International Assistance Program Outlays 2016 = $50 Billion
Total--Department of Homeland Security Outlays 2016 = $57.6 Billion
Total--Department of State Outlays 2016 = $ 29.5 Billion
Total--Other Defense Civil Programs Outlays 2016 = $65 Billion
Total—Department of Transportation Outlays 2016 = $79 Billion
Total—Department of Defense—Military Outlays 2016 = $566 Billion


2016 Total-Interest on the Public Debt = $430 Billion
2016 Total-IRS, Payment where earned income credit exceeds liability for tax Outlays = $60.5 Billion
2016 Total Social Security Administration Outlays = $980 Billion
2015 Total Outlays for International Assistance Programs = $54.6 Billion
2014 Total Office of Personnel Management Outlays (Govt Wages) = $138.63 Billion

January Jones's picture

Kinda like the S&L game in the 80's or a Martin Shkreli knuckleball.


Potential self dealing or conflict of interest? You decide:

Guy sick of the stress, quits his job and buys 50 acres of land in Alaska as far from humanity as possible.

After six months of total isolation, a neighbor knocks on his door. He opens it and sees a huge, bearded man standing there.

"Name's Lars, your neighbour from forty miles up the road... Having a Christmas party Friday night... Thought you might like to come. About 5:00."

"Great", says Tom, "after six months out here I'm ready to meet some local folks . Thank you."

As Lars is leaving, he stops. "Gotta warn you...There's gonna be some drinkin'."

"Not a problem" says Tom. "After 25 years in business, I can drink with the best of 'em."

Again, the big man starts to leave and stops. "More n' likely gonna be some fightin'  too."

"Well, I get along with people, I'll be all right. I'll be there. Thanks again."

"More'n likely be some wild sex, too."

"Now that's really not a problem," says Tom.. "I've been all alone for six months! I'll definitely be there.

By the way, what should I wear?"

 "Whatever you want. Only gonna be the two of us."

red1chief's picture

Hard to believe investors are that stupid. Must be corruption, or "pay to play" with other people's money.

any_mouse's picture

In the details. The buyout funds are typically set up to last no longer than ten years. The fund is time limited.

The ten years is up, but the assets held by the ten year fund are as good as it gets in today's market and doing well. Makes little sense to sell on the open market and pay out the proceeds to the partners.

The fund holders were expecting the fund to expire. They would be expecting the fund to payout. They may want to put that money to use in another fund.

Setup the new fund to last longer than ten years. Transfer the assets from old fund to new fund. The new partners will be the the same old partners.

They are not getting fooled.

If you like the assets, you can keep the assets.

Dump's picture

Or even after ten years there are no other buyers for the assets, and he has to create one - his own new fund. No doubt existing fund members will be invited to join. And the band keeps playing.

Muppet's picture

Today, I sold a high six digit position in a Fidelity mutual fund (FCNTX).  What I cannot understand is how it sold at todays price.   I cannot believe that anothe buyer was ready and willing to pick up that fund at that price.


Someone/Anyone: Who is still buying big positions and why????

slightlyskeptical's picture

Because it is an open end fund, what you did was redeem your shares. You didn't sell them to another party. Fidelity will fund the redemption out of the funds existing cash or sell shares it owns in the fund to pay you.

BTW how do you have six figures in that and not know how it works? You now have a capital gains tax to pay as well. 

Dump's picture

Muppet. But a lucky one.

Be reluctant to buy ANY ETF. Why? Great in a rising market when the new member's cash is used to by more shares/assets and thereby underpin ETF vaulations.

Lousy in a falling market when the ETF must sell underlying shares/assets to produce cash to pay the redeemer. Can get very nasty quickly.