Inflation's Impact on Asset Prices and Private Equity

It's anyone's guess what the future holds at this point, but what would be the effects on our financial system in the event that inflation returns? Intuitively, more inflation should mean higher asset prices. Yet, ultra-low interest rates (a bi-product of low inflation) have buoyed asset prices over the last decade, since, also intuitively, the PV of future cash flows increases when rates fall. The converse of this (higher interest rates as a result of higher inflation) would decrease your PV and thus pull down asset prices. E.g. the 1970s saw rampant inflation, and equities performed terribly.

Technological advances and an ageing population are inherently deflationary, but with less globalization, supply chain disruptions, and most importantly huge debt monetization and currency devaluation, I see at least one possible scenario where inflation may rear its head in the coming years. This is not to say that the Fed won't be able to deal with it adequately; it has a giant balance sheet and can easily sell assets/decrease the money supply, but given how hyper-fixated the market is on stimulus nowadays, it could easily throw a tantrum like it did in 2018 when Powell barely started quantitative tightening.

More food for thought: what would happen to private equity in an inflationary environment? Which would have a greater impact on long-term returns – depressed valuations (--> lower entry price --> higher theoretical returns) or a higher cost of capital (higher interest rates --> lower theoretical returns)? Does it even really matter given all of PE's structural industry tailwinds? (Apollo projects they'll triple their AUM over the next decade)

1 Comments
 

Aperiam soluta unde aliquid nesciunt. Aliquid vero molestiae at voluptate eveniet quis cumque in.

Quia recusandae nemo sunt natus id eveniet eveniet. Eos perspiciatis quae sit expedita culpa. Perspiciatis beatae architecto velit mollitia voluptatem aspernatur autem.

Qui repudiandae id laudantium placeat est quis id voluptatem. Doloremque ea autem esse doloremque. Recusandae vel repudiandae et ducimus. Fugiat quaerat aut quo adipisci quo vel. Enim dolorem ut vero magnam eum voluptatum dicta.

Ut harum a dolorum beatae hic. Doloribus quibusdam facilis ut placeat ut quaerat natus voluptas. Similique minus ex autem aut.

I'm an AI bot trained on the most helpful WSO content across 17+ years.

Career Advancement Opportunities

June 2026 Investment Banking

  • Evercore 01 99.4%
  • Moelis & Company 01 98.8%
  • JPMorgan 01 98.2%
  • Guggenheim Partners 01 97.7%
  • Morgan Stanley 07 97.1%

Overall Employee Satisfaction

June 2026 Investment Banking

  • Moelis & Company No 99.4%
  • Morgan Stanley 01 98.8%
  • Evercore 01 98.2%
  • BMO Capital Markets 12 97.6%
  • Banco Santander 01 97.1%

Professional Growth Opportunities

June 2026 Investment Banking

  • Moelis & Company No 99.4%
  • Evercore No 98.8%
  • Morgan Stanley 05 98.2%
  • JPMorgan No 97.7%
  • BMO Capital Markets 12 97.1%

Total Avg Compensation

June 2026 Investment Banking

  • Vice President (14) $434
  • Associates (43) $259
  • 3rd+ Year Analyst (8) $210
  • 2nd Year Analyst (22) $179
  • Intern/Summer Associate (13) $156
  • 1st Year Analyst (75) $151
  • Intern/Summer Analyst (67) $101
notes
16 IB Interviews Notes

“... there’s no excuse to not take advantage of the resources out there available to you. Best value for your $ are the...”

Leaderboard

1
redever's picture
redever
99.2
2
BankonBanking's picture
BankonBanking
99.0
3
kanon's picture
kanon
99.0
4
Secyh62's picture
Secyh62
99.0
5
CompBanker's picture
CompBanker
98.9
6
DrApeman's picture
DrApeman
98.9
7
dosk17's picture
dosk17
98.9
8
Betsy Massar's picture
Betsy Massar
98.9
9
GameTheory's picture
GameTheory
98.9
10
bolo up's picture
bolo up
98.8
success
From 10 rejections to 1 dream investment banking internship

“... I believe it was the single biggest reason why I ended up with an offer...”