Big Investors Not Into P.E. Clubbing

The bigger the buyout, the harder it may be to convince large institutional investors that private equity firms are doing the right thing by participating in so-called “club deals.” State pension funds have been driving the p.e. market as they are pressured to produce outsized returns to avoid shortfalls. But, according to Financial Times, those investors are now challenging the wisdom of such deals that see groups of p.e. funds pooling their resources to win the prize company, such as the recent record $33 billion bid for hospital operator HCA. The concerns are that the club deals raises risk for investors and are inconsistent with p.e. fund strategy to diversify portfolios to reduce risk. “We are not in love with [club deals],” Peter Gilbert of the Pennsylvania State Employees’ Retirement System told FT. “There are concerns about what is going on in the market.” Private equity funds will have something to worry about, if the unhappiness spreads. After all, according to Russell Investment Group, public pension funds have boosted their investment in .p.e fourfold to about $100 billion in 10 years. While industry watchers may argue that investors benefit from the group approach by picking up good companies, pension funds are adopting a wait-and-see attitude. “So far, there hasn’t been a deal with a concentration of risk that would cause alarm,” Joe Dear of the Washington State Investment Board said in an FT interview,” but we are watching that.”