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Seeing Promise in Private Equity As Others Cut and Run
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But where is Bush going to get the money to buy?
"Remember one thing," he said. "Every month, pension funds take in money and pension funds have an obligation to pay their retirees over time. So new capital is available in the market every month and the money has to be put to work."
Bush then offered similar advice to what Russ Ramsey had a few weeks ago. Ramsey, a co-founder of Friedman, Billings, Ramsey Group who now runs a private investment firm, said to keep investing, even as the market continues its crash.
Bush said: "You could look at this current situation we are in and say it's awful. But if you are a long-term investor, you have to look past this and you continue to invest in things that are going to yield long-term returns."
Given his experience, I asked Bush if the private-equity model based on cheap credit has been blown up. Here's the model: put up a minimal amount of money and borrow the rest for an ailing business. Increase the business's revenues, making it more valuable, and then sell it at a big profit.
"In the short term, private-equity firms will tend to work more with strategic partners, and the assets acquired will be less leveraged," he said. "Over the long term, you've got to remember that banks have to lend to make money and that this too shall pass. My view is that the current situation should reach bottom some time in early to mid-2009, and by 2010 we should have a more robust economy again."
Thomas Heath's "Value Added" column focuses on Washington's entrepreneurial set. It runs on the WashBiz Blog athttp:/
