“They have the luxury of time to work with the assets,” he says. “The Darwinism in our industry is pretty slow.”
The coronavirus outbreak could well throw up bargains for PE firms. The co-founder of US giant Blackstone, Stephen Schwarzman, certainly thinks so. “From an economic perspective, the virus has created dislocation in the market and fear among the people, and once that starts one has to find the impact of negative consequences,” he said this week. “It creates a substantial opportunity to buy assets and give credit.”
Any moderation in asset prices would be welcomed by Arcauz, who says there’s been a “scary” shift in risk-taking in the industry in recent years.
It’s not just rising valuations that worry him. The wall of money entering the sector in search of yield has also seen PE managers executive big raisings that have, in the case of the smaller managers he works with, tripled their fund sizes. That can’t help but create what Arcauz describes as “strategic drift” when a manager used to buying companies worth $200 million is suddenly buying companies worth $1 billion.
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