Private equity firms are blackballing or banning credit hedge funds from participating in the leveraged loans and high yield bonds that back their buyouts and recapitalisations. The move is the latest sign of growing tensions between the two.
While blackballing is not unusual, the practice suggests battle lines are being drawn between private equity sponsors and the hedge fund industry.
The head of a European high yield capital markets department in London said: “There has been a long history of private equity firms and hedge funds at odds with each other in the private mezzanine market but the tension has spilled over into other segments of the leveraged finance and high-yield arena.â€Â
“It’s fair to say that many, if not all, financial sponsors – including the most powerful – have a blacklist of hedge funds they do not want investing in leveraged loans or other subordinated financing supporting their buyouts or recapitalisations,†he said.
Private equity sponsors and hedge funds raise money from the same wealthy individuals and large institutional investors by promising lucrative returns. But they take different approaches to trading bonds and loans on the capital markets, which lie at the heart of the clash.
