FT Exposes The Literal Definition Of Ponzi-Scheming In Private Equity

Private equity firms are increasingly selling assets to themselves through "continuation vehicles," a practice surging in popularity. These vehicles allow firms to raise new funds to repurchase assets from their older funds, boosting their own holdings. This tactic has become prevalent because traditional exit strategies like sales or IPOs are challenging to execute in the current market. These transactions enable firms to return capital to investors in older funds while retaining control of assets and generating fresh fees. The practice involves inherent conflicts of interest, as the same firm determines the price of assets in these internal sales. Limited partners, including pension funds, are expressing concern over potentially undervalued assets in these deals. Some investors are even suing firms for alleged undervaluing of assets in order to enrich themselves. Originally a last resort, continuation vehicles are now utilized to maintain control of desirable assets. Despite a preference for external sales, the lack of outside buyers has made these internal transactions the new norm. This system, though presented as beneficial, acts as a way to prolong the private equity bubble. The practice is viewed by some as a sophisticated, yet concerning, form of self-dealing.