Uncle Sam, a shareholder forever?

September 28, 2009

ShareholderHow long will it take the U.S. government to disentangle itself from the financial services sector?

More than 16 years, according to a new Piper Jaffray paper.

“The more likely answer may be that the U.S. government may never be fully repaid,” reads the paper, “Opportunities for Private Equity in Financial Services,” released last week.

The estimate is based on assumptions, including that $3 trillion of U.S. government funding has to be fully repaid and no addition funds are drawn from $23.7 trillion in commitments. 

For private equity investors, who are the focus of the paper, that’s the new reality to keep in mind when making decisions about invesmtents in this field.

“The U.S. government’s direct stakeholdings in the financial services sector will persist for many years and private equity investors should be prepared for the U.S. government’s involvement to span multiple investment, economic and political cycles,” it reads.

Still, the industry that includes banks, insurers, specialty finance and financial technology companies is likely to present ample opportunities for private equity to invest, according to the 49 page report, which also includes a sector-by-sector update on the state of affairs.

“We believe that in this period of extinction, re-birth and evolutionary change, the financial services sector will present many complex challenges for private equity investors but those will be outweighed by extraordinary opportunity,” the paper reads.

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