Elements of private equity firms resemble Ponzi schemes, Europe’s largest asset manager says

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  • Aspects of private equity firms resemble Ponzi schemes, Europe's largest asset manager said.
  • Amundi Asset Management chief investment officer Vincent Mortier made the remarks in a presentation, the FT said.
  • "Eventually there will be casualties, but that might not be for three, four, or five years," he predicted.

Private equity firms resemble a Ponzi scheme in some aspects, according to Europe's largest asset management firm.

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Amundi Asset Management chief investment officer Vincent Mortier thinks private equity will have to answer for their secrecy with clients' cash in the years to come.

"Some parts of private equity look like a pyramid scheme in a way. You know you can sell [assets] to another private equity firm for 20 or 30 times earnings. That's why you can talk about a Ponzi. It's a circular thing," he said in a presentation, according to the Financial Times.

Private equity firms often tie up their clients' cash for an extended period of time, offering little to no visibility on valuation changes unless a portfolio business is listed or a PE firm chooses to make a sale price public.

And during the time in between such moves, any quarterly updates offer only rough assessments extrapolated from similar assets that are publicly traded. 

"There are some very, very good opportunities, but there are no miracles. Eventually there will be casualties, but that might not be for three, four, or five years," Mortier said. 

Mortier's comments come as private equity finds continued success and hoards cash. Private equity accounts for over $6 trillion in assets under management, according to the FT which cited data from McKinsey. 

 

Read the original article on Business Insider

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