For all those CIOs of pension funds and endowments who continued, over the last two years, to reup for large buyout funds like KKR, TPG, Bain, and Blackstone, you just might be on the verge of learning a lesson about capital markets: a period of recent excellent performance often presages a period of equally dismal performance.
Witness the loose parts beginning to spin off of the mega-buyout machine as one engine (the funding turbine) is out of whack and slowing while at the same time the spending engine has gotten way out ahead.
Yesterday U.S. Foodservice had to pull a $3.6 billion debt offering that was to fund the buyout by KKR and CD&R. Several other deals have been "postponed". Another $250 billion of junk bond buyout funding is scheduled to come to the markets in the next several months.
It was our view that the buyout returns of the last 5-6 years were unlikely to be repeated in the next 5 or so years - simply because the conditions were unlikely to be as favorable as they had been. This is starting to look like a pretty good bet.
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