WEST PALM BEACH, FL (HedgeCo.Net) – Hedge funds with significant assets in cash have begun to invade the arena of Leveraged Buy Outs, according to Henry Kravis co-founder of Kohlberg Kravis Roberts& Co. Mr. Kravis made such remarks while addressing a recent conference in New York. According to him, some individuals with access to money but limited experience in the leveraged buy outoperations are getting involved in the LBO arena.
Hedge funds have participated in the leveraged buy out business in limited capacities, such as short-term lenders in LBO events, according to Kravis. Recently an increasing number of them have begun to venture into these areas that have traditionally been dominated by private equity companies.
Hedge fund firms participated in offers for the Texas Genco deal, however a buyout group comprising of Blackstone Group, Texas Pacific Group and Hellman & Friedman won the offer valued at $3.65 billion. Some buyout executives were not particularly pleased at this trend, because they think the leveraged buyout field is already overcrowded.
Commenting on this trend, Jonathan Nelson, chief executive of Providence Equity Partners, said, “The consequences of the new capital are potentially destabilizing.” Nelson is worried that sudden entry of hedge funds with access to huge pools of capital will significantly destabilize the leveraged buyout industry.
Other industry participants however, do not necessarily think this trend will materialize. Part of the reason is that hedge funds are generally involved in short-term investment trading opportunities. The Leveraged buyout business involves a prolonged period of negotiations, some lasting for over one year. Hedge funds do not have the time to wait for such lengthy negotiation process. Joshua Rosenberg, president of Hedge Fund Research (HFR), thinks such long-term opportunity investments do not fit hedge fund profiles in today�s markets.
Paul Oranika
Editor-in-Chief
HedgeCo.Net
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