Ken Fisher, CEO of Fisher Investments, told CNBC’s “Morning Call” that private equity is in the middle of a “perfect storm” and there will be more IPOs like Blackstone Group in the future.
He said P/E ratios are lower in relation to interest rates than they’ve been in about 25 years. This allows a company to borrow money to buy back its shares or to take over a competitor, boosting earnings per share.
“The effect of all that is the private equity firm can do the same thing,” Fisher said Friday. “It’s an arbitrage. It’s basically free money to the private equity firm…This is a perfect storm for private equity firms and in my view…we’re going to see to see a lot more of these deals in the next few years until we get to the point where the interest rate – P/E ratio arbitrage potential goes away.”
Interest rates are rising, but aren’t “even close” to ending the private equity wave, Fisher said.
He said future IPOs in the sector won’t offer premiums to investors as strong as Blackstone Group, but it will still make sense for other private equity firms to go public.
“I don’t think we’re close to the end of this,” Fisher said.