The "Smartest Money" Is Liquidating Stocks At A Record Pace: "Selling Everything That’s Not Bolted Down"

Just over two years ago, at the Milken global conference, the head of Apollo Group Leon Black said that "this is an almost biblical opportunity to reap gains and sell" adding that his firm has been a net seller for the last 15 months, ending with the emphatic punchline that Apollo is "selling everything that is not nailed down."

Roughly at that time the great stock buyback binge began, which coupled with two more central banks entering the stock levitation "wealth effect" bonanza, provided ample opportunity for the biggest asset managers in the world to sell into.

But while we knew that both "vanilla" institutions and hedge funds were actively selling in the public markets, it was not until last week when we got the most candid glimpse of just how much. We described it last week when citing Bank of America who said that "BofAML clients were big net sellers of US stocks in the amount of $4.1bn, following four weeks of net buying. Net sales were the largest since January 2008 and led by institutional clients—after three weeks of net buying, institutional clients’ net sales last week were the largest in our data history."


Today, we got definitive confirmation that the truly "smartest money in the room", those who dabble not in the bipolar public markets but in private equity had indeed started "selling everything that is not nailed down" several years ago hitting a climax this past quarter, when Bloomberg reported that two years after Leon Black's infamous statement, "other private-equity firms are following suit - dumping stakes into the markets at a record clip."

According to Bloomberg data, firms including Blackstone Group and TPG have been "capitalizing on record stock markets around the world to sell shares, mostly in their companies that have already gone public. Globally, buyout firms conducted 97 stock offerings in the second quarter, more than in any other three-month period."

And who are these core investors selling their equity stakes to: mostly to the companies themselves...


... but what's worse, as directors and ultimate decision-makers, they are forcing their very companies to lever up even more to fund these buybacks of "insider" stock!


Since Black made his comments in April 2013, the MSCI World Index has gained 18%, stretching valuations even higher. Bloomberg adds that "headwinds that threaten to rattle global equities are everywhere -- from the Greek and Puerto Rican debt crises to an eventual increase in U.S. interest rates" but in a world in which central banks are the first and last backstop to a market drop, there is "no risk"... which is why the insiders are taking every advantage to liquidate.

"It’s clear that we are currently in an environment of frothy valuations,” said Lise Buyer, founder of IPO advisory firm Class V Group.

Her disturbing punchline: "The insiders - those with the most knowledge - are finding this a very good time to take some money off the table."

This year, private-equity firms sold $73 billion of their buyouts to the public, a record amount over a six month period, Bloomberg data show.

Some examples:

The biggest such deal this year came in May when Blackstone sold 90 million shares, or $2.69 billion worth, of hotel-chain Hilton Worldwide Holdings Inc. in a secondary offering. Blackstone took the company private in 2007 for $26 billion and did an IPO in December 2013, raising $2.7 billion. After the latest sale, Blackstone’s stake in Hilton fell to 46 percent from 82 percent before the IPO, Bloomberg data show.


The largest European exit so far this year was the $2.46 billion IPO of online car dealership Auto Trader Group Plc in London, where Apax Partners sold shares. In Asia, private-equity firm China Aerospace Investment Holdings Ltd. sold 2.3 million shares in a $2.12 billion IPO of China National Nuclear Power Co.

Which leads to a paradox: the PE firms, now focused on selling the remainder of their equity positions in massive peak credit bubble LBOs from the 2006-2007 period via secondaries have nothing left to take public, and as a result  they’re doing fewer initial offerings: PE-backed IPOs have had the slowest start to the year since 2010, selling $8.2 billion in stock.

The reason: "many of the larger companies that were swooped up during the buyout boom that ended in 2007 have already gone public. Today’s selling is largely private-equity owners getting out of those assets."

“It’s been a lot more about harvesting public positions than creating new ones through IPOs,” said Cully Davis, co-head of equity capital markets for the Americas at Credit Suisse Group AG. “The markets are open and the financial sponsors are pretty astute about timing their exits.”

In other words, the insiders are not only selling, they are liquidating every last share they can find.

In an echo of Leon Black, Frank Maturo, vice chairman of equity capital markets at UBS AG, said, “Private equity is selling everything that’s not bolted down. With the robust valuations in today’s market, they are accelerating monetizations of companies they own.”

But what does the smart money know, anyway... aside, of course, from selling when they can not when they have to.

And now back to CNBC and their paper-money "trader" talking heads saying there is only upside from here to eternity. Let's see if we have these right: "the money is still on the sidelines", "there is a wall of worry", "Greece is a dip-buying opportunity", actually "everything is a dip-buying opportunity", "stocks are not a bubble, it is bonds that are a bubble", "the economic recovery is just around the corner" and "99% percentile valuations are just slightly stretched if you seasonally-adjusted them enough times."

That about covers it.