Friday, May 16, 2008

"Small world, people !"

Michael Gordon in FT calls the Private Equity bluff

“So now we know. The boom in private equity, which was promoted as the superior business model, based on patient capital, superior management and an alignment of interests, was nothing more than a trick of financial engineering - and a clumsy one at that. The magic of leverage works both ways, as we are discovering…. Private equity as we have come to know it is all about debt - lock, stock and sinking barrel. There may have been better management and better incentive structures in the deals of recent years. But they really contribute nothing to the overall return when compared with the impact of the leverage in the capital structure.”
But before Gordon could call global PE bluff, I’ve called that of the Indian PE masters. Here is my local, factual account. If leveraging had done them in globally, here in India they've been wrecked by smart owners that palmed off sizeable chunks at fabulous valuations. Now they are left to lick their wounds. Small world, huh?

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