Private equity, an investing trade plied by 4,500 firms with $3 trillion in assets, is bracing for a shakeout that’s been brewing since the collapse of credit markets choked off a record leveraged-buyout binge, industry insiders told Bloomberg.
Firms that attracted an unprecedented $702 billion from investors from 2006 to 2008 must replenish their coffers for future deals and avoid a reduction in fee income when the investment periods on those older funds run out, typically after five years. As many as 708 firms face such deadlines through 2015, according to London-based researcher Preqin Ltd.
Private-equity firms pool money from investors including pension plans and endowments with a mandate to buy companies within five to six years, then sell them and return the funds with a profit after about 10 years. The firms, which use debt to finance the deals and amplify returns, typically charge an annual management fee equal to 1.5 percent to 2 percent of committed funds and keep 20 percent of profit from investments.