Anthony Bolton, the highly-respected outgoing Fidelity fund manager, has reportedly said the private equity industry is approaching the end of its current cycle.
According to media reports, Bolton told ex-Marks and Spencer head Paul Myners at the Fund Forum in Monaco: “Like with everything, there is a cycle to private equity. They’ve now got into mega deals and are coming into the public eye, and I think that contains the factors that will end the cycle in private equity.”
Valuations have been pushed to high levels because of the recent boom, and some deals are being done with reckless capital structures, Bolton warned.
Bolton echoed remarks by Alchemy head Jon Moulton during yesterday’s Treasury Select Committee hearing into private equity, when he called the top of the private equity boom and compared the current high use of leverage to the ailing sub-prime mortgage area.
Nonetheless, Bolton believes the incentives provided by the industry are leading to a “brain drain” in publicly-listed companies. “Investors in public companies are being severely disadvantaged if they don’t have the best managers running the company. We should have higher incentives for executives of listed companies, provided it is results-oriented – and I have gone out on a limb for this,” he insisted.
In May, when he announced that he was stepping down from his position at Fidelity, Bolton warned of a private equity bubble fuelled by the covenant-lite loan industry. He claimed a debt-fuelled bubble could have serious consequences for the capital markets generally, given the current scale of the merger and acquisitions boom.