In the post-pandemic era, private equity funds are grappling with an excess of assets but limited exit opportunities, marking a potential crisis for the industry. This situation poses a significant threat to the private equity model, which relies on asset liquidation to generate returns. Nassef Sawiris, an Egyptian industrialist and billionaire investor, highlights the end of the golden age for U.S. private equity, citing difficulties in exiting investments and delivering returns, which frustrates investors.
Sawiris criticizes the use of "continuation funds," where private equity groups transfer assets to new funds they control instead of selling or going public. This practice has gained popularity, with continuation funds growing by about 50% last year to a record $76 billion, according to Houlihan Lokey. Sawiris also points out that private equity managers prioritize fundraising over improving portfolio company performance, spending most of their time on capital raising.
Data from Bain & Co. reveals that for the first time since 2005, the private equity industry's assets under management declined by 2% to $4.7 trillion as of June 2024. This decline is compounded by market volatility and challenges in selling assets bought at high valuations. Sawiris suggests that only large financial institutions capable of competing with major banks like JPMorgan and Bank of America may survive this shake-up.
