Private Equity's Latest Financial Alchemy Is Worrying Investors

bloomberg.com

2 pointstoomuchtodo4 comments

It's not clear to me what the worrying part is? Just that the PE company can change the rules of the deal if they gather new investors? That doesn't surprise me, and provided the original investors get their cash, not sure I see the problem in that process.

It demonstrates lack of liquidity for an exit of the investment. Continuity vehicle to continuity vehicle is hot potato.

The problem is that there is a class of assets whose price is some best guess of the firms engineering them. Much like sub-prime.

> Accel-KKR’s investment in isolved, which the firm acquired in 2011, has generated a 19.2 times gross multiple on investment, according to people with knowledge of the matter. It pitched another continuation fund for isolved because the company has more room for growth, the people said.

If they haven't sold isolved, it means they are just saying it is worth 19.2 times as much as they paid for it. When they "roll" it into a Continuation Vehicle, they are effectively inflating assets by saying its value is 20x what it paid for and the reason is "trust us bro".

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