I am sorry to continue a series of articles that report on the pending  failure of the private equity firm in America but I must. These firms have set their eyes on our private DB legacy and will buy it out through the insurers they now own.

You can read this article in the FT for free on this link.

The private capital industry’s problems are far worse than Wall Street has acknowledged, as traditional metrics obscure weaknesses in the leveraged buyout market, according to a top credit hedge fund.

So starts Amelia Pollard’s article on Monday (16th).

A “substantial portion” of the private equity industry is already “stressed or distressed”, said Tony Yoseloff, managing partner and chief investment officer at credit hedge fund Davidson Kempner Capital Management.

The hedge fund argues excessive leverage, weak cash flows and loose debt contracts have converged to create a ripe environment for corporate defaults.

How do we feel if our pensions are traded in a secondary market of distressed assets being sold by distressed private equity firms?

“You’re not looking at a problem five years from now, you’re looking at a problem that exists today.”

The hedge fund argues excessive leverage, weak cash flows and loose debt contracts have converged to create a ripe environment for corporate defaults.

Is this what we mean by “gilt edged buy out”? We should not suppose that when an insurer buys out our pensions, it does not try to make money on our money.

So far we have looked at the buy-out market in DB pensions as safe as the Bank of England who regulates the market through the PRA, but is the PRA in control of what happens when money is bulked off to Bermuda and used to provide private credit through firms we read about but have no knowledge of. The likes of Blue Owl are not known in Britain but they are the problem that is frightening the US retail market.

Private equity has gone to extreme lengths to generate returns even as firms have struggled to exit investments, turning to secondary fund sales and continuation funds to make distributions to investors.

The industry’s proliferation of roll-ups of mom-and-pop businesses like car washes and insurance brokerage firms has also had mixed results. These groups had a record backlog of almost $4tn in unsold investments last year, even as dealmaking began to make a comeback, according to a recent report from consultancy Bain & Company.

I suggest there is a generation of young people who were not in the market in 2007 when we last had a looming crisis heading our way from the United States by way of financing.

I remember how it began and it feels like it now.  Back in those days, the sitting duck was housing, today it is pensions. Either way we are walking into a problem because the clever people who advise and practice pension buy-outs do not consider what is happening to the money that has been put aside to pay pensions in the UK.