MUST READ
An amazing article (in the CFO magazine dated 1st Apr, 2007) on the private equity (PE) boom
http://www.cfo.com/article.cfm/8909971/1/c_8910395?f=home_magazine
Refer to my comments posted on this blog on March 30th
http://av.blogspot.com/2007/03/fallout-of-ballooning-asset-bubble.html
Showing posts with label private equity. Show all posts
Showing posts with label private equity. Show all posts
Sunday, April 8, 2007
Friday, March 30, 2007
Fallout of the ballooning asset bubble....
Global M&A topped 1 trillion USD in the first three months of this year (Jan '07 to Mar '07) reports Financial Times.
This is 15% higher than same period last year. What is causing such a frentic activity ? The surge of liquidity in the last two years, has been blamed for most of the excesses.
Is this a bubble that is likely to burst and have far reaching consequences on the economy ???
How do bubbles get created in the first place ? Bubbles are created when the fundamentals of an underlying asset are ignored and purchasing decisions are based on just one factor - "is someone likely to buy from me at higher price later?"
The newspaper DNA reported about Mumbai's first real estate bubble
http://www.dnaindia.com/report.asp?NewsID=1082931
The $1000 billion worth of deals would have been financed primarily through LBO funds and a sizeable portion of it would have involved private equity players. The modus operandi - borrow money cheap, buy out, show short term improvement in operations, sell out. But what is strange is that players like Blackstone are raising money by taking their company public rather than selling their investments - "same phenomenon of expecting to sell assets at a higher price eventually?"
Let us hope that there is no sudden panic which would cause manic deleveraging. Otherwise it would lead to severe pain in the world's financial system.
How do you protect yourself ? If you are holding on to a risky asset, it is time you diversified or managed the risk by buying some form of insurance.
This is 15% higher than same period last year. What is causing such a frentic activity ? The surge of liquidity in the last two years, has been blamed for most of the excesses.
Is this a bubble that is likely to burst and have far reaching consequences on the economy ???
How do bubbles get created in the first place ? Bubbles are created when the fundamentals of an underlying asset are ignored and purchasing decisions are based on just one factor - "is someone likely to buy from me at higher price later?"
The newspaper DNA reported about Mumbai's first real estate bubble
http://www.dnaindia.com/report.asp?NewsID=1082931
The $1000 billion worth of deals would have been financed primarily through LBO funds and a sizeable portion of it would have involved private equity players. The modus operandi - borrow money cheap, buy out, show short term improvement in operations, sell out. But what is strange is that players like Blackstone are raising money by taking their company public rather than selling their investments - "same phenomenon of expecting to sell assets at a higher price eventually?"
Let us hope that there is no sudden panic which would cause manic deleveraging. Otherwise it would lead to severe pain in the world's financial system.
How do you protect yourself ? If you are holding on to a risky asset, it is time you diversified or managed the risk by buying some form of insurance.
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