“Our view is that we find better risk-return opportunities in the first chapter of a CV than a second,” said Stepstone’s Johnston.

This is a private equity commentator at Stepstone explaining succinctly a problem which the rest of us have not yet woken up to CVs  and – CV squared.

These guys are for the professional investors, no wonder Bloomberg talks with them

Creating clarity in the private markets is something that this blog ought to be doing to, so I am finding out with Bloomberg and FT and will translate the fancy talk into simple talk.

Put less concisely but more readably by Bloomberg

Private equity firms are using continuation vehicles, or CVs, to hold on to companies for longer, with some even creating CVs of CVs, or CV-squareds, as they limp through a dealmaking drought.

A continuation vehicle is a fund that a private equity manager creates to dump a company’s shares into when it a) cannot sell it or b) could sell it on a public market but doesn’t want to disappoint. The people disappointed are all those who benefit from a valuation of private shares staying high and a “CV” allows shares to continue to be valued by the new fund without being discounted (marked down to general disappointment).

So what follows is CV squared

According to Harold Hope, global head of private market secondaries at Goldman Sachs Group Inc., “I don’t think this is the norm,” regarding CV-squared deals, and some investors are growing impatient and skeptical of these deals.

My friend John Mather has another way of expressing his “growing impatience“.

“Remember the dot.com market of 1999 – its back” – heading of his email to me.

I thought I’d buy Bloomberg and find out more , (it’s quite a good deal at £1.99 for the first month but goes up by 15 times if you don’t cancel in the first 30 days!)

It tells me that CVs are the new way for PE to avoid either selling the company to another company (M&A) or floating the valuation on a public market (stock exchange to you or me). The number of investments going into CVs or now CV squared (where firms that have been CV’d once are CV’d again to keep the valuation up for longer).

So why this curious behaviour?

Perhaps it’s connected with this headline from the FT.

This seems sensible behaviour for PE firms, drop the prices of your funds and get disgruntled prices down.

Private equity groups raised just $592bn in the 12 months to June: their lowest tally for seven years, data from Preqin show.

The decline came even as firms offered more discounts such as management fee cuts, “early-bird discounts” for investors who commit quickly to new funds and other incentives.

Investing quickly might turn into “invest without checking these CVs and CVs squared and here is where the most serious investors seem to be drawing the line in the sand. “No more money until you clean your act up” – seems to be the consensus.

Higher interest rates and a slowdown in dealmaking have left firms unable to sell trillions of dollars in ageing investments, causing growing frustration from investors, many of whom are now refusing to back funds.

What happens? The answer is that the fund management firms find a new, more gullible market, enter the fund of funds , marketed to UK pensions with LTAFs which are being bought up by master trusts to keep them on the right side of their promises under Mansion House.

This is where I am dubious of the smaller master trusts who don’t have the financial and analytical strength to buy wisely but go with household names that satisfy them and their clients (advisers, employers and some sharp members). I tend to trust master trusts who have £25bn + and there aren’t many of them. I do not trust insurers bringing large numbers of LTAFs to the market for their in-house investors (trustees and personal pension managers).

But this is scaping the bottom of the barrel for Private Managers. The FT reports that the sheer number chasing a diminishing number of customers is a worry for the Private Equity and Credit industry

A Raymond James report from July showed that about 1,500 buyout funds are aiming to raise $474bn in new funds. However, advisers warned that some funds would not be able to reach their goals as institutional investors slow their new commitments.

“[Investors] are looking at each opportunity with a bit of a kind of cool head,”

Joseph at Rede Partners said.

“The biggest thing that they’re really looking at is [whether] this manager . . . [is] fit for the future.”

Let’s be clear, this is not the time to be trusting others with your money unless you are comfortable with their capacity to invest. Investing in private markets is a buyer’s market and your money should not be chasing CVs and CV squared investment. You should not be finding yourself invested in fund of funds where you can’t see what’s going on and you are probably being sold companies at valuations that couldn’t be achieved in the M&A and in public markets.

We need to be very careful as customers and stick with what we know and Pension Schemes we trust. There aren’t many of them about so if in doubt, stay out of private markets right now.