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Former U.S. Senator Christopher Dodd weighed in on JPMorgan Chase's much-publicized trading loss Thursday, pointing to it as validation of the need for the landmark financial reform legislation he co-authored.
June 1 -
Senate testimony by CFTC Chairman Gary Gensler is expected to shed light on the split between regulators over the Volcker Rule.
May 21
Axa Private Equity is armed to take advantage of the upheaval in banking.
The investment arm of the French insurer AXA Group recently raised $8 billion for buying up some of the stakes that U.S. banks own in private-equity firms. The Volcker Rule's limits on alternative investments are expected to prompt banks and other financial institutions to unload their holdings in buyout funds in the coming year.
Benoit Verbrugghe, Axa Private Equity's senior managing director and head of North America, says the firm forecasts that $30 billion to $35 billion of interests in private-equity funds will change hands this year.
Axa Private Equity is among a handful of investment firms gearing up for a chance to buy in at a good price in funds controlled by KKR (KKR), Carlyle Group (CG) and other firms that raised massive amounts of money before the economy tanked.
Its new fund was stronger than expected, and the $8 billion it raised topped the $7 billion raised last year by rival Lexington Capital. The firm in recent years has purchased big private-equity stakes from Barclays Capital, Citigroup (C) and Bank of America (BAC).
The firm expects to do even more deals, Verbrugghe said in an interview with American Banker. An edited transcript follows.
Can you give me a sense of the flow of deals you're seeing and what you are looking to buy?
BENOIT VERBRUGGHE: The deal flow is very strong as of today. What is very interesting for us is to be selective and to cherry-pick good quality assets. We are looking for large and complex transactions where we have good visibility on the assets and we're able to deliver a global solution to the seller. This means being able to deliver from A to Z, buying up a considerable amount of strong and good assets, conducting a fair transaction for both parties and finding a solution not only for the seller but also for the [management]team in place.
When you purchased some private-equity assets from Citigroup, a manager came over with that deal.
Yes. And so what we try to do is offer an opportunity to the team in place to become independent, to work with us as an advisor and to help us manage the portfolio we are buying. For them it is a good way to manage the portfolio they built at the bank, build a new chapter for themselves, to raise a new fund and establish themselves as a new and independent general partner. Part of being a global solution is being a strong counterparty for big institutions like global banks.
Do you see more opportunities on the horizon akin to what you've done already — particularly with North American institutions?
We are in discussion with some of them, of course. And we think that deal flow will be very strong over the next year. The banks still have a lot of private-equity holdings on their balance sheets.
Some of the banks have said that because of Dodd-Frank and the Volcker Rule, they need to move now. Whereas some of the other banks have decided they can wait because the rules are not yet clear, and for now they will keep their private-equity holdings and see what is going on.
We believe that as the regulatory pressure mounts, those that have waited for two years will be more or less forced to sell their private-equity stakes quickly. And the secondary market is the main market today to achieve these sales. Some people are calling us back today to start a conversation about their portfolio.
About how much private equity is still on the balance sheets of these U.S. banks?
The market is huge. They are obliged to get out of it. There is a limit, 3% or less of the total balance sheet can be in private equity.
Does a forced sale mean a low-priced sale?
Forced is not distressed. It's not the same. To be forced to do something — you do it, but have time. So you can collect the right bids and find the right buyer. In our market, we don't have so many distressed sellers. It's more forced, or people who decide to say, "I already have my return. Now I want to crystallize my internal rate of returns. So I can take a short haircut, 10% discount, and at least I will have my money back now, instead of waiting for two or three years more." So, again, it's arbitrage. And that's why the secondary market is no longer taboo for pension funds and others, unlike five years ago.
Do you see banks more or less reluctant to sell their private-equity assets than they were last year?
They have to follow the regulations. Some of them have been reluctant over the last two years but at a certain point, they will be obliged to take action — with the exception being those who are fine in terms of limits and can keep their portfolio as is. But most of them are above the limit. Even if some are reluctant to use the secondary market, they will be forced to sell for regulatory issues. It might not be ideal, but it is not a choice. It will be a must and that is it. One day, the board will say, we still have this level of private equity on our balance sheet and we need to do something.
