The growth of private equity funds will help the Australian share market continue its positive momentum into 2007, according to Praemium Portfolio Services chairman and former central banker Dr Don Stammer.
Stammer said the past three years were good for investors, with commodities, property and shares producing very positive returns, but that this was already “priced into the market”.
“…at times the market is likely to be jumpy, but the influence of private equity funds is something that is still going for our market,” he told an FPA lunch in Sydney.
“From all the cycles I’ve been through in the share market there is always something that drives the market for a while above fair value and this time I think it is going to be the role of private equity.”
Essentially, private equity firms borrow from banks and other lenders and then put that money back into the share market.
“Just imagine if they [the Kohlberg Kravis Roberts-led US private equity consortium] had gone ahead with the acquisition of Coles Myer for around $18 billion. People would have been paid out cash for their Coles Myer shares and a lot of money would have then gone back into the share market,” Stammer said.
“Just look how active private equity players in Europe are pumping a lot of debt into the share market, which is positive.”
