Private equity may not be good enough for Elliott Management. Bulking up in buyouts is a logical step for Paul Singer’s hedge fund, which already has a toe in the business through subsidiary Evergreen Coast Capital. Yet market turmoil has hit established players like Blackstone and Apollo Global, and the industry is awash in capital.
Elliott has been dabbling in buyouts for several years as an extension of the activist investing it’s famous for. It bought Athenahealth with a partner last year and recently agreed to purchase online travel company Travelport after having taken a minority stake and agitated unsuccessfully for a sale. Its actions are somewhat like those of Carl Icahn, who occasionally bids for companies he is trying to put in play, as he did with Dell.
Raising a dedicated buyout fund would represent a significant increase in Elliott’s commitment to the strategy. It has chosen a tricky time to do so. The turbulence that roiled equity and bond markets in the fourth quarter took a toll on private-equity firms. Blackstone and Apollo Global each posted a loss for the period on Thursday, reflecting markdowns of their holdings and sharp declines in proceeds from selling investments. Leon Black’s Apollo was in the red for the full year, the first time since 2011.
The firms continued to make money for their limited partners, albeit at a reduced rate, by distributing earnings from their operating companies. And the January rebound in equities has recouped a little more than half of those fourth-quarter writedowns, according to Blackstone’s finance chief, Michael Chae. That explains why investors continue to shower money on the big buyout shops. Blackstone hauled in $39 billion of new money in the quarter while Apollo took in $16 billion.
Elliott’s new fund could function more as a co-investment vehicle and won’t charge a management fee, according to the Wall Street Journal. That may help it stand out from rivals. Yet the $2 billion it’s seeking is a drop in the ocean for an industry that has more than $600 billion to deploy on buyouts, according to Bain Capital. Elliott’s move might add some extra spice to its bread-and-butter activism. But late and small to the game is no formula for success.
Request a free trial of Breakingviews here.