Private Equity Pull Back From Exotic and Controversial Liquidity Loans
- Firms step back from loans solely for the purpose of payouts
- GPs have listened to concerns, says Perpetual’s Wiehenkamp
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For years, buyout firms used controversial loans backed by their equity stakes to juice up returns in their funds. After attracting criticism from some of the same investors the practice was supposed to benefit, they are hitting the brakes.
Net-asset-value loans, which layer extra leverage onto private companies already carrying heavy debt, have come under scrutiny, especially when buyout firms use them to fund distributions rather than growth. Many firms borrowed against their portfolio companies to keep the private market bonanza alive while deal-making withered.