Europe’s biggest asset manager Amundi has described elements of the private equity industry as a “pyramid scheme” and “ponzi scheme” due to the fact that firms can sell assets onto peers for bumper profits.
In a presentation to investors today, Amundi’s chief investment officer Vincent Mortier said “some parts of private equity look like a pyramid scheme in a way”, the Financial Times reported.
“You know you can sell [assets] to another private equity firm for 20 or 30 times earnings. That’s why you can talk about a Ponzi. It’s a circular thing,” he said.
Mortier added that there are currently incentives for private equity firms to sell assets between each other at inflated prices, but the industry faced a reckoning in the coming years.
“Just because there’s no mark to market doesn’t mean there’s no risk,” he said.
“There are some very, very good opportunities, but there are no miracles. Eventually there will be casualties, but that might not be for three, four, or five years.”
Mortier’s comments come after a dealmaking frenzy last year in which private equity firms put pent up pandemic cash to work.
Deal value soared to $987.6bn last year, more than doubling what was an already high total of $474.5bn in 2020, according to data from Mergermarket.
Amundi declined to comment.