[A-List] Re: Private equity vs. hedge funds

[CeJ <jannuzi@xxxxxxxxx>]

> > Second, if â or when â the credit cycle does turn in the leveraged
finance world, it will pit private equity funds against hedge funds to a
degree rarely seen before. That would make compelling viewing, since it
could be a nasty battle.>>

Hedge funds are pretty self-explanatory, but private equity is more
complex and elusive. To the extent that they compete for the same
credit (leverage) and profits, they might simply act more and more
alike. Both want to avoid the sort of returns that mean they are
headed back to the 'historical mean', or, in other words, 'indexing'
the world economy.

The world that needs more analysis is not simply this dichotomy, but
rather all the overlapping entities--venture capital, private equity
and private equity arms of public companies, private equity partially
floated publicly (happening now), Warren Buffet's Berkshire Hathaway
(which acts like private equity and a hedge fund as well as a holding
company like Jack Welch's GE), holding companies that sit at the top
of all the acquisitions, and the institutional investors who patronize
them all. It seems the one thing they all have in common the ability
to get credit (to leverage) and to escape regulation in the post
Reagan-Thatcher, post-financial big bang world.

I think it's ironic that Carlyle Group, one of the more famous private
equity companies that emerged in the US from the late 80s on, was
really set up to be a US military contractor holding company in order
for mostly American interests to stay ahead of reform and
'deregulation' of the US, UK and European weapons industries.  And
there were those who wanted to stay ahead of trends in energy
deregulation. So in retrospect the 'greed' of the founders of Enron
was that they also wanted to make lots of money directly off the 90s
stock market bubble by keeping their company publicly listed. Had they
followed tactics more like Carlyle Group, they would still be around.


C