And when does this gravy train end? Seems to me they are providing a small amount of equity, but borrowing most of it. At some point somebody is going to want that money back plus interest. If the economy slows will they make the profit and cash flow needed to pay it? I wonder how long before the payments start and whether the rate is fixed or linked to prime. I was here in 1980 when business loans cost over 21%. Kinda makes you wonder, don't it?
Equity borrowing falls into three camps. Hedging .... the ability to meet interest and capital repayments. Speculative ... can meet the interest but not the capital repayments. Ponzi .... cannot meet interest or capital callings from cash flow. Obligations can only be meet from capital sales.
They get their money from private investors, which are akin to shareholders, all owning respective percentages of the variety of member firms that cross pollinate or participate in the deals they get involved with, and entrust their investments to the general partners of the fund(s). That they leverage the assets they acquire, or even use the assets they ultimately acquire, to help make their purchases, is immaterial. Just like public and privately held businesses, they can borrow money with lenders, and raise additional cash from existing and additional members. Don't forget; there are many varieties of private equity funds (e.g. mezzanine capital, venture capital, etc.). I agree with your general assessment that a lot of money that went into these funds in the last couple years is chasing performance, and that many of these funds will drastically underperform the market indexes when we get the next, inevitable economic downturn, and that many of their investors will lose significant portions of their investments. The easy money in these firms was made 2 and 3 years ago. They do also have a propensity to take on more debt and get into intensely leveraged positions that in certain instances may be hedged on a certain bet, such as the value of natural gas futures or the Japanese Yen, as well.
When a huge private equity firm like Blackstone goes "public" you certainly have to question it. Also Tons and Tons of Liquidity is driving the Private Equity market to new heights.
OIL$$$$!!!! Huge middle east influx of investors. Just google the retail brands they bought the last 2 years and quietly own.