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March 04, 2016

Private equity the new shadow banks?

The IUF began documenting the evolution of leveraged buyout funds into multi-faceted financial conglomerates - and the risks this posed to workers and to financial regulation - even before the great financial meltdown, which accelerated the trend. A recent article on the Naked Capitalism website (The New Shadow Banks: Private Equity Becomes Private Credit) details the ways in which "private equity funds, whose business model depends on high levels of borrowing, have gone into the shadow banking business to supplant banks as their debt suppliers."

This not only shields the funds from the timid post-Lehman regulatory attempts to curb banks' riskier loan activity. It has important implications for the way the funds manage their portfolio companies. "With private equity groups now also LBO lenders, what happens when one of them takes equity and debt positions in the same company?"

Read the full article here