The FT published an article yesterday in which they reported:
Private equity firms sold companies to themselves at a record rate this year, making use of a controversial tactic to hold on to assets as managers struggled to find buyers or list their investments.
As they then explained:
Roughly a fifth of all PE sales this year involved groups raising money from new investors to acquire businesses from their older funds, up from 12-13 per cent the previous year, said Sunaina Sinha Haldea, global head of private capital advisory at Raymond James.
Such transactions sell assets already owned by a PE group to so-called continuation vehicles — newer funds also managed by the firm. The tactic enables PE firms to return cash to investors in older funds, but has prompted concerns about potential conflicts of interest.
Apparently, the sales in question were worth $107bn in 2025, compared to $70bn in 2024.
First, forgive me for suggesting that this looks like a Ponzi-style arrangement where newer entrants into a scheme of financialisation are used as the source of funds to pay returns to earlier investors, but candidly, that is precisely what it looks like.
And, secondly, excuse me again for thinking that this stinks of desperation to maintain values when supposed "free markets" could not justify the returns being claimed on the assets in question.
I have long thought private equity funds a racket best avoided by any investor possessed of a sound mind and clear vision. This only confirms my view. If such techniques have to be used to create profits in this sector, the resulting reported returns appear, at best, of poor quality. Others might disagree, though. So, you take your pick, but I would rather stay well and truly clear of such activities with my savings.
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It may not technically be a Ponzi scheme, and it is not unusual for existing investors to be the first tapped up for later rounds. So long as there is a public exit at a comparable value profits may be shifted between investment funds, but unless the business fails nobody is left with a worthless asset.
It may also be appropriate to have spare investment funds so that someone cashing out of a fund can liquidate their stake in a reasonable timescale, with most funds expected to be reinvested into the current fund unless a cash out is required.
However, there is clearly identified abuse potential. The first is over-valuing assets on transfer, securing performance fees and profits for early investors.
The second is undervaluing assets. This actually offers a higher profit potential if the manager has involvement in the later rounds, and that would be almost the opposite of a Ponzi scheme, taking a proportion of the profits from earlier investors to give instant profit to later ones.
I think some abuse the system more, with the right to invest in later rounds at a discount being part of many big investments. That lets fund managers book great performance on the existing fund, while getting money in at a discount in the current round, securing both performance fees on their existing investments and getting an instant profit on the new investment while reducing their risk of taking a loss later when their assets are sold because a 10% down round would still leave them a profit.
It is slightly more subtle than a pure Ponzi scheme but the key is that it keeps PE snouts in the trough for longer.
First, it’s not necessarily the new funds that are being ripped off. Famously, Abu Dhabi is suing a PE Manager for selling a company on too cheaply to a new fund. All we know for certain is that the price will be fixed to maximise the payout to the PE Manager.
However, the general position is that the public markets have wised up and realised that you don’t want to buy anything that PE is selling (Thames Water anyone). So, they can’t achieve the valuations they want….. unless they sell to other PE funds.
The problem with PE is that the extra return (if any) is eaten up by fees and/or merely obtained by more leverage and the lower volatility is due to asynchronous valuations and ‘marking your own homework’.
As you observe, this is a Ponzi scheme….. but is it really any different than the current public equity market?
The last is a very good question.
Now I am only a bear with a small brain but the fact that Pizza Express has been left with debts equivalent to £1 million PER RESTURANT as a result of several changes of hands as it passed through ‘private equity’ owners makes me think somethings a bit wrong.
The most expensive ingredient in any of their pizzas is interest.
I spent 5 years working for a company that was owned by private equity between 2006 and 2010.
They rip the heart out of businesses and treat the people ‘at the coalface’ despicably while paying senior managers huge bonuses.
I can only imagine how depraved they will have got 15 years since I left.
There’s not much to like about private equity:
❌Excessive Leverage: Aggressive use of debt to fund acquisitions places heavy repayment burdens on the acquired company, increasing bankruptcy risks.
❌Short-Termism: Focus on a 3–7 year exit window can prioritise immediate profit over long-term stability and innovation.
❌Cost-Cutting: Aggressive restructuring often leads to mass layoffs, reduced wages, and lower employee morale.
❌Asset Stripping: Valuable assets (like real estate) may be sold off to pay dividends to the private equity firm.
❌Lack of Transparency: High fees and opaque operations can hide risks from investors and regulators.
Where private equity has been used we see:
“Investors are making a fortune from UK healthcare. Why is nobody holding private equity to account?”
https://www.theguardian.com/commentisfree/2024/mar/13/uk-healthcare-private-equity-cancer-treatment-services
Private equity is predatory capitalism with a long trail of destruction (2024)
https://leftfootforward.org/2024/04/private-equity-is-predatory-capitalism-with-a-long-trail-of-destruction/
How Private Equity Plundered The American Economy
https://www.youtube.com/watch?v=z5PLEZiSZVw
Thanks