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.
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