Private equity firms sit on piles of cash as asset prices jump

London

WITH plenty of money and a scarcity of deals, private equity firms' cash piles are the highest they've been since the depths of the financial crisis.

Then there is increasing competition from newly flush Chinese and pension fund bidders. Add to that low interest rates which lower borrowing costs and investors who want the funds they helped raise deployed. The combination makes the few assets in the market like chum in the water.

"With funds sitting on a lot of capital, there is often a feeding frenzy for attractive assets," said Neel Sachdev, a partner at Kirkland & Ellis LLP. "This could result in inflated prices and high multiples being paid due to huge demand."

The average premium buyout firms paid for acquisitions this year is about 31 per cent, an eight-year high, according to data compiled by Bloomberg. That could be a warning sign for buyout firms. They have to find a way to sell assets for more than they paid within a few years to satisfy investors who contributed to…