Saving Private Equity

The recent US Federal Reserve's decision to lower interest rates by 50bp have indeed given a huge interim lifeline to the global financial sector to continue extending credit to credit-worthy borrowers and encouraging Merger and Acquisition (M&A) activities. Unlike the market crash in August where many investors were found catching a falling knife, most markets have since recovered. In fact, some stock markets such as Wall Street and Hong Kong Hang Seng have either reached or surpassed the all-time high. Some attributed the bullish sentiment to global funds' window dressing activities, which coincided with third quarter closing, whilst some relate the reason being recovery of confidence due to lesser probability of credit crunch. However, in my personal view, the real impact will only be testified in the coming months or quarter, where corporate earnings are due to release. Certainly i do not think we are totally out of the woods yet. Whatever it is, it is certainly positive for all, including private equity, whom has been recently heavily hit by the US subprime woes as a result of the meltdown in residential real estate property prices. Many of the private equity had indeed either suffered major losses or facing the crude reality of closure. Indeed, this is a good lesson for all that for those who are fond of "HIGH RISK, HIGH RETURN", the reverse (HIGH RISK, HIGH LOSSES) holds true too!

Nevertheless, private equity is definitely here to stay as companies, institutions and high net worth individuals continue to pursue opportunities for greater returns at "whatever" cost. This is the risk that investors should bear in mind and ready to accept the "fate" if the worse should happen. However, let's not rule the whole forest as bad as there are a number of "genuine" private equity funds that are continuing to do very well.