Report: Sovereign wealth funds “to replace Wall Street”

Buyouts executives such as European buyout firm Terra Firma’s Guy Hands are attempting to tap alternative debt providers, especially the sovereign wealth funds, in an effort to keep doing deals.

Terra Firma founder Guy Hands said yesterday Western banks will be supplanted by sovereign wealth funds as lenders to private equity, according to UK newspaper Financial Times.

[The Abu Dhabi Investment Authority] “will effectively replace Wall Street.

Guy Hands

Hands and other executives said at the SuperReturn conference in Munich yesterday they expected banks to cut back on loans to buyout firms for 18 to 24 months as they attempt to syndicate the $200 billion of unsyndicated leveraged buyout debt, according to the FT.

Hands said sovereign wealth fund the Abu Dhabi Investment Authority “will effectively replace Wall Street”.

Other executives believed alternative sources of capital would also be available. David Rubenstein said: “One thing you can say about business is whenever there is a vacuum, people go in to fill it.” He said he expected to see more alternative debt financing from sovereign funds, public pension funds, hedge funds and mutual funds.

David Bonderman, head of TPG Capital, said: “Banks have become a much less important provider of debt, less so in Europe, but notably in the US.” Bonderman said less than 20 percent of US leveraged buyout debt was held by banks.

But Rubenstein also said he believed banks would come back and alternative investors would be edged out by the banks providing cheaper debt. “I don't think you'll see them in this for the long term, as the returns are not attractive enough.”

Mark Spinner, head of private equity at UK law firm Eversheds said in a statement: “The availability of sovereign wealth funds and other alternative debt sources, particularly from the Middle East, is only the tip of the iceberg.” He said Middle Eastern investors are expanding generally far beyond infrastructure and real estate to buy in the still active buyout mid-market.