Private Equity Funds Having Trouble Thinking of Profitable Investments

Another disturbing story to follow up on the boom in share buybacks is Julie Creswell’s NYT report on how the private equity industry is sitting on a boatload of cash and doesn’t really know what to invest it in:

Private equity firms, where corporate takeovers are planned and plotted, today sit atop an estimated $500 billion. But the deal makers are desperate to find deals worth doing, and the clock is ticking. [...] So for now buyout artists are searching for their next act. Public pension funds, university endowments, insurance companies and other institutions have pledged to invest many billions with them — provided the deal makers can find companies to buy. If they fail, investors can walk away, taking lucrative business with them.

The problems of private equity fund managers are of no concern to me. But the issue is the self-fulfilling nature of current dim prophecies about the future. With everyone projecting slow growth and low inflation—very low Nominal GDP growth in other words—for years to come, invest opportunities don’t look very appealing. But a general hesitance to invest is exactly the sort of thing that leads to slow growth.