LONDON – The private equity industry has grown into a pyramid scheme that will create casualties in around three to five years, the chief investment officer of Europe’s biggest asset manager said on Wednesday.
Vincent Mortier, the CIO of Amundi, said deals were being done at exorbitant valuations and private equity firms were on both sides of the transactions.
“In some parts the private equity market may be like a Ponzi scheme,” Mortier told reporters.
“What you see is that the vast majority of deals currently are being done between private equity firms. One private equity firm will sell to another who is happy to pay a high price as they have attracted a lot of investors.
“The bulk of deals are like this.”
Private equity firms have been a major force in driving M&A activity during the pandemic, snapping up assets from sports clubs to supermarkets.
On Wednesday, New York-based investment firm RedBird Capital Partners agreed to buy Italian Serie A soccer club AC Milan for 1.2 billion euros ($1.28 billion) from U.S. hedge fund Elliot Management, which took control of the club in 2018 after its previous owners defaulted on their debt.
This year’s biggest private equity transaction, at $60 billion, involves U.S. buyout fund Blackstone, which is part of a consortium bidding for Italian infrastructure firm Atlantia.
Mortier said that private equity firms sitting on large cashpiles from investors had “a vested interest” and “you know you can exit your stake to another private equity company at 20-30 times forward earnings”.
While there were opportunities involving serious private equity firms, he said reckless dealmaking carried risks.
“There is no mark-to-market but it doesn’t mean there is no risk, no loss attached,” Mortier said. “We will have casualties but they will be seen only in three, four, five years’ time.”
($1 = 0.9397 euros)
(Reporting by Sujata Rao; editing by Barbara Lewis)