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PE Giants in Bond Market

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November 6, 2014

Over the last several years, five of the largest private equity firms in the US – Apollo Global Management, The Blackstone Group, The Carlyle Group, Oaktree Capital Management, and KKR have raised USD 8.5 billion in long term debt (30 year bonds) since 2009, according to a new report from Moody’s Investors Service.

 

The trend, which was also recently noted by the WSJ, is a sign of the “maturing” of the PE players listed here. Readers may recall that several of these are now publicly-traded companies and have been expanding from the narrow niche of PE and buyouts into other asset classes and asset management services. Moody’s says the PE firms’ bonds are attractive because their rates are higher than traditional investment-grade financial company long-term bonds.

 

The higher rates attract debt market investors, enabling the PE firms to more easily raise capital for their own growth and development, specifically to fund acquisitions, address product or geographic weaknesses, seed new products, and invest directly from their balance sheets. But there are risks in the trend, said Moody’s. While analysts expect the trend to continue, things like the proprietary nature of the investments; the risk of overpaying in an expensive M&A environment are notable.

 

The firms are also at risk if key personnel resign, and they are reliant on a small number of institutional investors (LPs) that are wary of paying dearly for PE-related fees. (Image source: WSJ).

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