posted by Bina | Monday, July 16, 2007
Private banks are rushing into a surprising new market: lending to high-flying private equity executives who are strapped for cash to invest in their own funds.
In Europe the market for lending to private equity executives is estimated to be about €1bn ($1.37bn), with HBOS, Citigroup and Royal Bank of Scotland among the banks involved.
In the US market, thought to be bigger, JPMorgan, Deutsche Bank, Citigroup and RBS are said to be active.
In the rush to win buy-out titans as clients, some banks are offering them attractive terms, with unsecured loans that sometimes have no recourse against personal assets. Demand for loans to buy-out executives has emerged as the size of funds raised by private equity firms has ballooned in recent years.
Investors generally insist the professionals at a private equity firm put their own money into any fund they raise, usually equivalent to 1-5 per cent of the total. A 2 per cent investment by staff at Permira and Apax Partners, which both recently raised €11bn funds, would mean finding €220m between the executives.
“A 35 year old graduate of Harvard or Cambridge joining a top firm in 2002, who is asked to put money into funds in 2002, 2005 and 2007 while they also have school fees and a mortgage, is often being caught short,” said a top UK-based private banker.
“We can lend to them, killing two birds with one stone, both supporting our investment bank and looking after the top guys in the industry,” he said.
An executive at one of the UK’s biggest private equity firms said loans were mostly needed by the younger company members.
“Unless you have been a partner for three or four cycles, then the money you are asked for is very substantial, especially if you live in London, with a house, school fees and investments,” he said.
Source : www.ft.com
In Europe the market for lending to private equity executives is estimated to be about €1bn ($1.37bn), with HBOS, Citigroup and Royal Bank of Scotland among the banks involved.
In the US market, thought to be bigger, JPMorgan, Deutsche Bank, Citigroup and RBS are said to be active.
In the rush to win buy-out titans as clients, some banks are offering them attractive terms, with unsecured loans that sometimes have no recourse against personal assets. Demand for loans to buy-out executives has emerged as the size of funds raised by private equity firms has ballooned in recent years.
Investors generally insist the professionals at a private equity firm put their own money into any fund they raise, usually equivalent to 1-5 per cent of the total. A 2 per cent investment by staff at Permira and Apax Partners, which both recently raised €11bn funds, would mean finding €220m between the executives.
“A 35 year old graduate of Harvard or Cambridge joining a top firm in 2002, who is asked to put money into funds in 2002, 2005 and 2007 while they also have school fees and a mortgage, is often being caught short,” said a top UK-based private banker.
“We can lend to them, killing two birds with one stone, both supporting our investment bank and looking after the top guys in the industry,” he said.
An executive at one of the UK’s biggest private equity firms said loans were mostly needed by the younger company members.
“Unless you have been a partner for three or four cycles, then the money you are asked for is very substantial, especially if you live in London, with a house, school fees and investments,” he said.
Source : www.ft.com
Labels: money
