By Sam Boughedda
Some private equity markets are beginning to resemble a Ponzi scheme according to Amundi SA's chief investment officer, Vincent Mortier.
According to a report from Bloomberg News, Mortier said in a virtual press briefing that the amount of money raised by private equity firms in recent years has resulted in valuations surging, incentivizing companies to purchase assets from each other at inflated prices.
Mortier said, "we are in a big bubble in the private markets."
“If I take an extreme analogy, for some parts, the private equity market may look like a Ponzi scheme, a pyramid, in a way.”
With interest rates at lows over the last few years, private equity has been a significant winner with buyout firms investing a record $1.1 trillion in new deals in 2021, according to a report from Bain & Co.
“The vast majority of deals are currently done between private equity players,“ Mortier explained, adding that a private equity player will sell to another that is happy to pay an inflated price "because they have attracted a lot of investors.”
According to Amundi's 2021 annual report, it had approximately 11 billion euros of assets invested in private equity, a small fragment of the 2 trillion euros it has in total assets under management.
“When you know you are able to exit your stake to another private equity house for a multiple of, let’s say, 20, 25 or 30 times earnings, of course you won’t mark down your book,” Mortier said. “That’s why I’m talking about a Ponzi because it’s a circular thing.”
However, the chief investment officer added that there are still good returns to be made in private equity markets, stating that not all private equity is bad but "sometimes there are no miracles.”