14 November 2023

Pass the Popcorn

Following changes in the US-China relationship, and changes in Beijing's approach to foreign investments, private equity firms find themselves with over a trillion dollars stuck in China, with any attempt to extricate these funds likely resulting in their getting pennies on the dollar.

It gives me warm fuzzies:

Private equity firms that amassed more than $1.5 trillion of assets in China in just two decades are now struggling to offload once-promising investments they were counting on for hefty returns.

With public markets in a slump and offering unattractive valuations, buyout firms are exploring private sales. But mounting concerns about the risks of investing in mainland China have left so-called secondary buyers demanding discounts of 30% to more than 60%, according to people familiar with the market. Haircuts in Europe and the US are closer to 15%.

Many firms are also looking at an alternative strategy, putting off sales by setting up so-called continuation funds to take over holdings for several more years, according to interviews with about a dozen of private equity investors and advisers. That’s also proving challenging.

Yeah, let's pretend that there are no losses in the hope that everything will eventually turn around.

To quote Herb Stein, ""If something cannot go on forever, it will stop."

I just hope that the American taxpayers don't have to bail out these very special geniuses again.


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