Fed Transcripts Reveal Concerns About Private Equity Boom

The Speed Traders Workshop, High-Frequency Trading Strategies with Edgar Perez

According to Petter Lattman, as the private equity bubble inflated during the first half of 2007, a period defined by record acquisitions by the world’s largest buyout firms, the Federal Reserve took notice.

In a transcript of the Fed’s March 2007 meeting, Janet L. Yellen, then president of the Federal Reserve Bank of San Francisco, appeared troubled by the frenzied private equity deal-making that had taken hold on Wall Street.

Despite the recent turmoil in equity and mortgage markets, a reassessment of overall risk has yet to occur. We are still in an environment of low long-term yields, ample liquidity and what appears to be a generally low level of compensation for risk. For example, I recently talked with the principals of several major private equity funds, who were not just amazed but also appalled about the amount of money their industry has attracted. [Laughter] One partner said that he would have no difficulty immediately raising $1 billion. Indeed, one of his biggest problems is would-be investors who get angry at him because he is unwilling to take their money.

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