Some of the world’s leading names in the hedge funds and private equity industries are visiting the Reuters bureaus in New York, London and Hong Kong this week to discuss the outlook for the sector in a series of exclusives interviews as part of the 2010 Reuters Hedge Funds and Private Equity Summit.
The once-booming $1.4 trillion hedge fund industry faces its toughest challenge ever, in the form of record poor performance last year and heavy client outflows.
And the $2.5 trillion private equity industry is licking its wounds after a year in which it made headlines more for bankrupt portfolio companies and collapsed deals than for the kind of mega-takeovers it was famous for just two years ago. Adding insult to injury, many investors are looking for ways to dump their once-coveted investments in private equity firms as they look to shed risk and the industry’s tax treatment is in the sights of the Obama administration.
There are deep-seated concerns over the health of the industry and the leveraged buyout model itself. With high levels of debt now pushing many private equity-owned companies into breach of their banking covenants, how many portfolio companies will fail and how many of their private equity backers will vanish?
“Well insulated” China, though suffering from sharp drops in its own equities markets, doesn’t have the sense of crisis that exists in the U.S., says Philip Partnow, managing director of UBS Securities Ltd in Beijing. UBS, the first Western bank to assume management control of a domestic mainland brokerage, points out the fact that what’s hitting companies is not subprime-related securities gone bad.
Marathon Asset Management, an $11 billion hedge fund and private equity group, is snapping up banks’ assets “across the spectrum” at a big discount, from residential mortgages to commercial real estate loans to leveraged loans, Chief Executive Bruce Richards tells the Reuters Hedge Funds and Private Equity Summit.
Richard Baker, who recently resigned his House seat to become president and CEO of the hedge fund industry’s main lobbying group, the Managed Funds Association, says he’ll be making a big push for fund companies to bolster the election year campaign kitties of influential legislators.
Markets are still anxious following the financial implosion of Bear Stearns but the situation has vastly improved since the Fed stepped in, Pacific Alternative Asset Management CEO Jane Buchan told the Reuters Hedge Fund and Private Equity Summit on Tuesday.