Friday, January 30, 2009

Don't eulogize private equity, Kravis says

By William L. Watts, MarketWatch
Last update: 5:51 a.m. EST Jan. 30, 2009

DAVOS, Switzerland (MarketWatch) -- Times are tough in the private equity business, but the industry will survive, Kohlberg Kravis Roberts founding partner Henry Kravis insisted Friday at the World Economic Forum's annual meeting.
"Private equity is not dead," Kravis said in a panel discussion on the global financial system at this year's gathering of corporate executives, politicians, regulators and others in the Swiss Alps.
Credit constraints have made deals more difficult, but not for the first time, he said, recalling a prime rate of 21% in 1979 accompanied by then-Federal Reserve Chairman Paul Volcker's subsequent decision to slap on credit controls that barred non-purpose lending.
"That was tough," Kravis said. Things weren't much better during the savings-and-loan crisis of 1990-91 when credit essentially dried up.
It's a similar situation today in the wake of the banking crisis, but money is available from a range of sources, he said, and there are opportunities for private equity.
The next three years will see about $1.7 trillion in debt in the United States come due, with about $1.5 trillion of that investment grade. Over five years, the figure is $3 trillion, he said.
Unless credit markets thaw, "there's going to be a real need for private equity," Kravis said.
Commitments by sovereign wealth funds and other sources mean around $400 billion is available for private equity firms, he said.
And private equity firms can still raise long-term debt, albeit on a smaller scale and from different sources, Kravis said. Sovereign wealth funds and pension funds, for example, are willing to invest in debt.
Finally, the amount of leverage needed buy stakes in companies has "obviously come down substantially" due to much lower purchase prices.

William L. Watts is a reporter for MarketWatch in London.

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