Investors Warn of 'Rot in Private Equity' as Funds Strike Circular Deals

https://www.nytimes.com/2025/12/24/business/private-equity-continuation-funds.html

by jimnotgym • 7 months ago

13 1 7 months ago

araes• 7 months ago

This entire article sounds suspiciously familiar. Like CDO (Collateralized Debt Obligation) / CDS (Credit Default Swap) 2.0. They're even using the "squared" terminology again.

The article's available at: https://archive.ph/mQzlF

Lets take a bunch of sketchy investments, package them into difficult to comprehend risk packages, sell ourselves dividends and fees based on debt loading, and then try to shuffle them off to somebody.

Except now, apparently the debts and the equity available look sketchy enough, that it's turning into "continuation vehicles". Nobody external will actually buy the private equity that's for sale. Backlog of 31,000 companies and interest rates that make all the debt look bad.

So make a different fund and sell the old equity to the new fund. Basically selling themselves their own companies and then pulling in new investors based on rewriting the valuation. The "squared" is doing that again and again with all their held equity.

In the example provided, Clearlake bought Wheel Pros at $420 million in 2018, and then sold it to themselves at $2300 million in 2021. Meanwhile, they loaded on debt and went on a buying spree "buy(ing) up almost every competitor that made accessories for the wheels of cars and trucks". Shiny hubcap market crashed and Wheel Pros went bankrupt.

There's "supposed" to be external independent review of the valuation, yet obviously that's not happening the way it's supposed to all the time. Another example provided, Energy & Minerals Group, "forced investors to vote on the sale on short notice, provided different data to different investors and would not allow the investors to confer with each other about the deal. (how that's even enforced)"

Looks super sketchy, and agree with the people from the Alaska Permanent Fund and Texas Teachers Retirement.

Investors Warn of 'Rot in Private Equity' as Funds Strike Circular Deals

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