In what may be welcome news to beleaguered private equity and venture capital firms, the nation's largest pension with $169 billion in public funds, California Public Employees' Retirement System, is considering a move to increase its private equity and venture capital investments by 40%, but it comes at a time when PE firms could experience a shakeout.
The CalPERS investment committee is expected to vote June 15 on a plan to increase its private equity allocation to 14% from 10%. To do so, the institutional investor would reduce its global equity portfolio, which includes hedge funds, to 49% from 56%. Other areas of investment would see small allocation adjustments too....
...However, PE firms are already sitting on an estimated $470 billion in dry powder raised but not invested because of tight debt markets. Additionally, PE firms are facing a potential time bomb as $430 billion in debt from deals done between 2004 and 2007 are expected to come due starting in 2012. If the market doesn't reopen, then a lot of leveraged buyouts will go bust as they won't be able to refinance debt, and in the process, bad deals will likely take some firms with them, concludes The Deal magazine's recent cover story The future and other problems. - Matthew Wurtzel