Writedowns loom for private equity industry

Private equity FDs are totting up the losses on investments, as the industry becomes the latest to wrestle with asset writedowns.

Many companies are likely to have lost a significant amount as the downturn has kicked in, with PE houses set to feel the effects in December, according to experts. The losses will be revealed when accounts are filed at the end of 2008 and early in 2009.

Jon Moulton, head of Alchemy Partners, said that there would be some ‘spectacular writedowns’ as buyout businesses suffered the effects of the credit crunch.

‘You should see the way private equity companies are trying to avoid putting the
full writedowns on the books,’ said Moulton. ‘If you had a company worth 100p last
June 40p would be equity and 60p would be debt.

That debt hasn’t gone anywhere but the equity has gone down to 10p. There will be some spectacular writedowns.’

Bob Ward, restructuring partner at Ernst & Young’s private equity division, said assigning fair value to an entire portfolio would be ‘quite a hard thing to do’.