How private equity groups are adding insult to injury

Following is a letter sent to the Editor of the Financial Times:

Dear Sir,

Perhaps Lina Saigol is right to chastise private equity groups ("How private equity groups are adding insult to injury" Financial Times, August 20, 2007), or, indeed, Paul Gaunt who doesn´t think that they so much smarter than the rest of us ("Perhaps these buy-out investors are super-intelligent" Letters, August 22, 2007).

What I would say is that many of these investors have produced above average returns for a long time, the same long time when other financial hot shots, hedge funds and the like, have been running around like the proverbial chicken.

It makes sense to me that private equity groups should be buying up the debt in their companies at distressed prices, price discounts that will bring their returns on these bonds up to the levels they are accustomed to. Understanding that, in search for liquidity, holders of this debt are selling at a discount the good assets they have, as nobody wants the bad stuff, it sounds like a good investment.

Private equity investors need to be held to account like the rest of us and, when the time comes, if they show mediocre performance, hopefully their shareholders and investors will penalize them.

All shareholders, however, need to focus on their managers and hold them to account. When banks begin announcing losses on their portfolios in businesses they never understood and should not have been in, they should be slapped down or shown the door.

Let us hold everyone to account shall we.

Onésimo Alvarez-Moro

See article:
The ability of private equity firms to reinvent themselves in times of crisis is astounding. Two minutes into a global credit panic, some of the world’s biggest funds are telling their investors not to worry.

Why? Because some buy-out funds believe they can use their existing capital and new cash being raised to buy up the senior secured debt within their own portfolio companies. Those that are really brave are boasting that they will even be able to acquire some of the more expensive tranches of junior debt.

See full Article (paid subscription required).