The private equity industry, according to Egyptian industrialist and billionaire investor Nassef Sawiris, has surpassed its prime and now faces significant challenges in divesting trillions of dollars in assets. Sawiris, who has allocated parts of his wealth into various buyout funds, expressed frustration shared by other investors with the lack of distributions over recent years. Firms have encountered difficulties in exiting investments due to a post-pandemic slowdown in dealmaking and initial public offerings.
Sawiris remarked to the Financial Times that private equity’s best days are behind it, stating that successful exits have become exceedingly difficult. Investors are reportedly frustrated, questioning buyout firms about the lack of returns and cash distributions over the past five to six years.
Criticism was directed by Sawiris at the tactic of using “continuation funds” to recycle capital. This strategy involves private equity groups moving assets into new funds, maintaining control rather than selling or publicly listing them. He labeled continuation funds as a significant issue, arguing that they represent a way to avoid selling businesses by leveraging them again. These continuation vehicles have gained popularity, with their value increasing by approximately 50% to reach a record $76 billion last year, as reported by investment bank Houlihan Lokey.
Sawiris’s comments come amidst the break-up of his Dutch-listed chemicals and fertilizer empire, OCI. Recently, OCI agreed to its fourth major disposal, amassing $11.6 billion in gross proceeds through asset sales to trade buyers. Most of its assets, including its global methanol business, fertilizer holdings, and a low-carbon ammonia project in Texas, have now been sold.
Proceeds from these sales have been used to return cash to shareholders, with OCI distributing $6.4 billion over the past four years. An additional payout of up to $1 billion is expected following the closure of its methanol business sale. Sawiris noted that OCI was fortunate with the timing of these disposals, given the disruption in dealmaking, a shift away from sustainable investments, and a decline in gas prices.
In an interview with the Financial Times last year, Sawiris mentioned that OCI could transition into a cash-rich company pursuing acquisitions in diverse industries. He was reportedly approached to purchase numerous companies using the asset sale proceeds, many of which were owned by private equity groups seeking an exit. However, he found no attractive targets among them, questioning why his company should resolve others’ issues.
Sawiris also criticized the priorities of private equity managers, suggesting they concentrate more on fundraising than on improving the operational performance of their portfolio companies. He suggested that managers spend 90% of their time on capital raising activities and only 10% managing businesses, attending board meetings without implementing plans effectively.
After decades of growth, the private equity industry’s assets under management declined last year for the first time since consultancy Bain & Co began tracking such data in 2005. By June 2024, assets had dipped 2% from the previous year to $4.7 trillion. The industry faces challenges as market volatility, exacerbated by US tariffs, has hampered dealmaking. Investment groups struggle to sell high-valuation assets acquired in recent years, complicating fundraising efforts.
Despite these challenges, Sawiris noted that the groups best poised for success are those that have grown sufficiently to compete with major financial institutions like JPMorgan and Bank of America.
