Why Investors Shouldn't Shy Away From Private Equity
The "Golden Age" of private equity was an “aberration” and contributed to halting private equity investments in 2008, said Steve Rattner, managing principal of Quadrangle Group.
"You had an enormous amount of money put to work in 2006 and 2007, very high prices, huge amounts of leverage, and those chickens are coming home to roost," Rattner said, in an interview on CNBC. (For the full interview, please see the video to the left.)
The struggling economy, along with the rapid spending that occurred over the last two years in private equity, has created a lack of leverage, but these hardships that private equity firms now face could be beneficial, Rattner said.
Although it is challenging to now finance smaller deals, there is more long-term opportunity in private equity investments because prices are lower and more conservatively priced, Rattner said.
“I do believe that investors shouldn’t run away from private equity right now, just when, in a sense, the party may be getting better, because the pricing and the capital structure is a little bit better than they did before,” Rattner said.