Private Equity goes to plan B, C, D...until they find one that works

It was nice while it lasted, but reality is finally catching up with the mega-cap private equity funds. The party reached its apex with those public offerings, but now the hangover of (a lot of) debt is now on the rampage. Freescale or ProSiebenSat equity stakes anyone?

Yet the diversity of reactions between these fund managers is interesting. Take Blackstone's quarterly update. Not much in the way of details, but writedowns are creeping into the equation. Fear not - management fees came to rescue to offset the nasty details of over-leveraging companies with dubious added value potential.

So where to go from here for the mega-cap funds? I tried the following suggestion with one of them, which went along these lines: for new funds, just waive the management fee! Existing funds provide more than enough annual charges (quaintly known as "Revenues" in investor relations land) for costs. Then you're magically aligned with your investor's interests, since to make any profit on the new fund requires you to beat your hurdle. Simple.

Needless to say, the blank stare I got from them was a Kodak moment. Which takes me to KKR Financial - did you notice the strategy drift in their CEO's comments? In the good old days KPE was described as a loans, high yield and distressed debt vehicle. Based on today's announcement, it still is, kind of - but depending on how things go, it might become a bank...or something else...still working on the plan. In the meantime, they're revoking the dividend. I guess they need the cash to spend on all that planning...