(Bloomberg) -- Private equity firms are finding new ways to monetize investments and return cash to their investors amid a sluggish market for exits, according to a top CVC Capital Partners executive.
“Exits and pressure to return liquidity is sort of the new big topic of the last 12-24 months,” Giampiero Mazza, a managing partner at CVC, said during the Bloomberg Future of Finance event in Milan on Thursday. “A lot of managers sitting on assets bought at high multiples don’t really want to face reality.”
An inversion in interest rates is making it hard for private equity firms to sell portfolio companies at attractive multiples as other managers have become more discerning, Mazza said.
“In private equity we also have a lot of discretion in marking our assets, so we tend to maybe not be as disciplined in marking the value,” he said, adding that the industry is now returning to some degree of normality.
Buyout funds are also resorting to measures such as moving assets to continuation funds and borrowing against their equity stakes to return cash to existing investors, according to Mazza.
So-called net asset value financing, where managers use leverage to fund distributions, is “probably the most controversial” practice in private equity, he said.
“They’re really putting leverage on already levered companies,” he said. “In my opinion that’s a bad sign.”
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