PRIVATE EQUITY AND IT’S TOO MANY CASH

saupload_0Viz-GAk0vEjhr_rdikow0LNJBy3p2_TCYvOCntmpxp98KkhXNBCOXQZoblYNmKtzE89CUMk6zUz8XGXQBoOjElwtgblWSay3ATcIyyCz3iURhMNw32WYkA-dUi1mxZWiGmLuV8JAmerican private equity firm Carlyle Group – investor in Dunkin’ Brands, Getty Images and Hertz, at one time or another – published its second-quarter earnings on Wednesday (yesterday), beating expectations.

Earnings per-share profits were a third higher than analysts expected, but making this the fourth consecutive quarter that the firm has beaten expectations. Carlyle is one of the largest private equity firms in the world, boasting $210 billion of assets, not to mention the $18.5 billion that it just added in its recent, biggest-ever fundraising round.

Blackstone, Carlyle’s worthiest opponent (with $440 billion in assets), outperformed Carlyle this quarter. The value of its private equity funds grew by 9.5% compared to Carlyle’s 3%, while competitor KKR & Co grew its own by 6.7%. One way these companies get their hands on even more money to invest is through buying stakes in insurance companies (like Carlyle announced it would on Wednesday). The premise of insurance is that policyholders pay up ahead of time in case the worst happens – and in the meantime that cash gets put to work earning more cash. Praise to the underlying principle of insurance, “everything cannot go wrong at the same time”.

With so much cash in the coffers of Carlyle and Blackstone alone, I can reasonably assume private equity firms altogether have a lot of cash at their disposal.  This cash is funds that have been raised but not yet invested, and there’s as much as $1.7 trillion of the stuff (the most ever, up from $1 trillion last year). When companies “go public”, regulations turn up intermittently. We obviously might not be seeing any of these Private equity firms go public any sooner or even forever.

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