Hellman & Friedman LLC’s Capital Partners IV Fund has generated a 36 percent return for investors since 2000, Bloomberg reports.
Investors in private equity funds who’ve enjoyed large returns like these during the buyout boom should brace themselves for a fall.
Buyout firms relied on cheap debt in the past two years to finance the biggest deals of all time, often paying premiums of more than 30 percent for companies. Now, as the subprime mortgage meltdown rattles credit markets, firms will have to sell their companies to buyers who no longer have access to low- cost loans. That will cut the sale prices of the companies and slash the buyout funds’ returns, billionaire financier Wilbur Ross says.
“When it comes time to resell these investments, we’ll likely be in a very different rate environment,” says Ross, whose New York-based WL Ross & Co. focuses on distressed assets such as auto parts makers. “The implications for returns could be substantial.”