The famous World War II General George S. Patton used to say that he didn’t judge a man by how high he climbed, but by how high he bounced after hitting the bottom.
It’s probably worth considering this as we explore the world of private equity funds and the role they’re playing in the biggest stock market rally in a least two generations.
Because the answer is: “not much of one”.
PE firms have stumped up a measly 5 percent of the $1.46 trillion worth of deals this year (a figure down more than third from last year), their smallest contribution since at least 2000, according to Mergers & Acquisitions Report.
And it’s not like there’s a wave of cash waiting to get put to work, either. London-based research group Preqin says that, globally, PE funds have raised $38 billion in the last three months, 45 percent less than in the second quarter and a fraction of the $208 billion raised just prior to the credit crisis in the second quarter of 2007.
Here in the UK, the figures are even more bleak, with only 31 deals in Q3 with a value of just £556 million ($890 million) -- the slowest pace in a quarter of a century.
To make matters worse, previous (mostly leveraged) deals made with private equity cash are starting to come unglued: there have been 17-sponsored insolvencies in the UK so far this year, up 55 percent from 2008 and the highest total since the tech-bubble bursting aftermath of 2001.
In the US, the 62 PE-related Chapter 11 filings have already outpaced last years total, the most recent being Colony Capital-backed Station Casinos, which blew-up around $2.7 billion in equity.
The industry itself , especially in Europe, is going through some major upheavals, with respected veteran John Moulton stepping down from Alchemy Partners after a clash over strategy. Damon Buffini will give up his role as chairman at Permira and Guy Hands is no longer chief executive at Terra Firma (although he is chairman and chief investment officer).
So why the crisis of confidence and transactions?