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April 2, 2014

Private equity needs less of a shadowy existence

“The often shadowy world of private equity and the leveraged finance market that supports it, were twice thrust into the spotlight last week.

“First, Mike Cavanagh, widely seen as a potential successor to JPMorgan boss Jamie Dimon, announced he was leaving banking to take a top job at buyout firm Carlyle. The precise reasons were not clear. But a less regulated life, and a pay deal worth an initial $39m plus profit share, might have played a role.

“Second, new data emerged suggesting 2014 is shaping up to be another record year in terms of “covenant-light” buyout loans, which provide fewer safeguards for financiers. Last year, dollar-denominated loans reached a record $260bn, up 69 per cent on the already inflated level of 2007. Private equity money is clearly hot – probably dangerously so.

“What is striking about the increasingly risky leveraged finance boom is the number of people, both on the lending and borrowing side of deals, who admit in private that the market is crazy and unsustainable.

“The root problem, as with so much of what is overheating in the financial world, is the persistently low interest rate landscape – and investors’ desperation to find better-yielding options for their cash.”

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Read full Financial Times article here.

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