BlackRock: `Massive amount of de-leveraging’ coming

The de-leveraging of assets worth trillions of dollars is presenting key opportunities for Asian private equity firms, according to BlackRock executives Joseph Pacini and Johnathan Seeg.

Private equity firms in Asia have a prime opportunity to invest in European assets held by entities with capital needs that are under increasing pressure, according to Johnathan Seeg, director of BlackRock Private Equity Partners in London. 

The timing is right, adds Joseph Pacini, head of BlackRock alternative investors strategy group for Asia Pacific. Until recently, investors were worried about a systemic collapse sparked by a Greek exit from the euro.

That headline risk has subsided, he believes, and there is an acceptance of a long and painful process involving the de-leveraging of assets, which private equity is well positioned to take advantage of.
“We are not of the opinion there will be a breakup of the euro [zone],” Pacini said.

We are not of the opinion there will be a break-up of the euro [zone].

Joseph Pacini

Implementation of new Basel III requirements combined with existing overlevered assets mean potentially $5 trillion — $10 trillion of de-leveraging needs to happen at the sovereign and corporate levels, he added. 

By comparison, the Asian financial crisis of 1997 involved $350 million in assets that needed to be de-levered.

“A massive amount of de-leveraging needs to take place in Europe,” Pacini said.

The opportunities BlackRock sees as most attractive for private equity are those from distressed sellers – entities with relatively healthy assets, which, for one reason or another, are struggling with capital requirements.

“A number of potential investors in Asia are looking for insights on the European market,” added Seeg, who is visiting the region to tell the Europe story. Sophisticated Asian investors have shown interest in Europe because they are willing to look beyond headline risks, he said.

Private equity can take advantage of particularly attractive sectors not tied to GDP growth such as healthcare, or the energy and infrastructure sectors, where public spending is diminishing, he said.

Because banks are pulling back on lending, European corporations are likely to divest healthy assets and family businesses will be looking for growth capital, Seeg added. 

“Despite a lot of macro concerns, corporate Europe is in better shape than sovereign Europe, and if you look at it on a deal-by-deal basis there are a lot of opportunities,” Seeg said.

Private equity firms take a five-year view with “patient investing” he said, and thus investors can benefit from what Blackrock believes will be a painful but eventual rebound in strength in Europe.