At David Solomon’s annual Milken Institute conference dinner this week, the Goldman Sachs chief executive hosted one of the event’s biggest names: Elon Musk.
Fresh from speaking to a packed auditorium in the Beverly Hilton on Monday, the Tesla chief executive joined about 20 investment heavyweights — among them Todd Boehly, co-owner of the Los Angeles Dodgers baseball team, and former Treasury secretary Steven Mnuchin — at a private residence. Musk sat at the centre of the table with Solomon and held court.
It was one of the hottest tickets of a week when thousands of money managers, bankers and investors descended on Beverly Hills for junk bond king Michael Milken’s annual jamboree. Others included a party thrown by actor-turned venture capitalist Ashton Kutcher and a bash hosted by Leonard Green founder Jonathan Sokoloff which featured English football royalty in the form of David Beckham.
The delegates came seeking partners and cash for what many were predicting would be a dealmaking resurgence later this year or in 2025.
The Hilton and other nearby hotels were heaving, with elevators packed to the gills and every table and chair claimed for rounds of speed dating with potential financial partners. But the big business was done behind closed doors in hotel suites and in the homes of local tycoons.
“It’s like going to Las Vegas,” the co-founder of one alternative asset manager said. “There’s money everywhere. Everyone is looking around, seeing who else can I talk to.”
The conference was the largest it has been since the return to in-person events after the pandemic. Reflecting a shift in power and efforts by big US asset managers to build ties with the Gulf, Middle Eastern investors were more in evidence than in years past; conversations about potential opportunities in China were far more guarded.
As snaking lines of enthusiasts queued to hear former US president Bill Clinton, Argentine president Javier Milei, and hedge fund tycoon Ken Griffin, would-be dealmakers barely looked up as they laid the groundwork for new mergers, acquisitions, buyouts and debt deals.
“The consensus from Milken is that 2025 is going to be a great year. The question is how much of that activity gets pulled forward in 2024,” said John Miller, executive co-chair of global investment banking at Jefferies. “Announced M&A is a leading indicator and it’s flashing green right now.”
Private equity managers were under pressure to sell assets and return more capital to their investors, known as limited partners, and corporate M&A was up 30 per cent year on year from a quiescent 2023, said EY chief economist Gregory Daco. EY is predicting double-digit growth in both types of dealmaking.
“Lenders are back, the strategic bid is back and interest rates have stabilised. A lot of deals will get done this year,” echoed Connor Teskey, president of Brookfield Asset Management.
But others worried about geopolitical uncertainty around the US election and tensions with China, and warned that the inability to agree on valuations could still put a significant damper on dealmaking.
“It’s a slightly schizophrenic environment,” Jonathan Hausman, chief strategy officer of the Ontario Teachers’ Pension Plan told the Financial Times. “On the one hand people see immense opportunities and are relieved that the US economy is popping. But evidence of really big shifts looms larger and larger: we’re living in a world prone to conflicts and this will continue for the foreseeable future.”
Mathieu Chabran, co-founder of alternatives manager Tikehau Capital, observed that “in many cases, buyout managers are still in denial about valuations; with no interest rate tightening in sight, there’s a disconnect between how much sellers want to receive and how much buyers are willing to pay”.
The lack of agreed deals wasn’t due to lack of effort, said one senior banker. “The joke is that August in the Hamptons has been cancelled,” he said, adding that a lot of “irons were in the fire”, but private equity shops and companies were not yet pulling the trigger on many sales. “We need more deals. We need to feed [demand from credit investors],” he said.
Another wondered, “who’s going to blink first” on valuations, adding that LPs may soon start asking if “maybe we should sell these assets”.
“The issue is not financing,” said Peter Toal, a senior banker at Barclays, referencing one of the central issues buyout groups struggled with last year. “The issue is marks [valuations] and sponsors not wanting to sell below their current marks.”
Many potential private equity buyers need to sell assets or float them in the public markets before their investors will give them cash to buy more.
While industry statistics suggest that private equity funds are sitting on $2.5tn in cash, that so-called dry powder is smaller than the more than $3tn in assets that firms are seeking to sell. The cash pile had also shrunk relative to soaring public market capitalisations in recent years, Peter Stavros, co-head of KKR’s private equity business, told a panel.
Buyers that do have cash can afford to be selective and demand bargains. “For new money coming into private equity, there are going to be a lot of amazing opportunities,” Stavros said.
Several large investors expressed scepticism that initial public offerings would provide much of an alternative to deals. “The utility of the public markets is going down,” said one executive at a large alternative asset manager, adding that his firm had begun studying “what the world would look like without public markets acting as a way for managers to exit investments in IPOs”.
“Private equity is undergoing a reset as tailwinds are now becoming headwinds,” said Scott Chan, deputy chief investment officer at Calstrs, the US’s second-largest pension fund. With sales few and far between, private equity-backed companies were having to refinance loans on tougher terms, he added: “We’re now seeing all of these private credit creditors at the table who are opportunistically stepping in.”
Veterans of past Milken events said one of this year’s biggest changes was the arrival of a new wave of Middle Eastern investors. Rather than just looking for places to put their cash, they were seeking deals that would tie investment to promises to bring financial services jobs to the region.
“They want to be more than providers of capital to the rest of the world,” said David Hunt, chief executive of global asset manager PGIM.
Views of China, on the other hand, had hardened, conference goers said. While few investors are selling out, many have paused new investment in China while waiting to see if Beijing can recharge economic growth. Others are encouraging their investee companies to seek alternatives to Chinese supply chains in Vietnam and Mexico.
“Most institutional investors have for now chosen their side of the fence on China — investors are either OK or not; there’s not much middle ground,” said Elizabeth Burton, client investment strategist at Goldman Sachs Asset Management.
That left much of the focus at Milken on the US economy and its potential for growth.
“People are not as euphoric now as when we were in the ‘goldilocks moment’ of low inflation and no hard landing for the economy,” said John McAuley, Citi’s head of debt capital markets North America: “But while it is not firing on all cylinders, there is a strong economy, the Fed is ready to pivot and there is debt available to do deals.”
This article has been amended since publication to clarify the amount of so-called dry powder the private equity industry has
