There was an immense boom in PE since 2008. Now with higher interest rates, the industries prospects look much bleaker. Do you think PE will still be as rewarding as it was over the last big boom cycle or do you think we will see a much more moderate asset class in the future?
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A couple colleagues of mine used to work for one of the early PE pioneers, household name, etc. He used to tell them in the late 90s and early 2000s that the heyday of PE was long gone and you’d never see deals / returns like they did back in the day. Fast forward, and we had one of the best runs in history in the 2010s as low interest rates and the tech explosion minted countless new billionaires.
Sure, the industry is more mature now, and there’s currently an imbalance between capital availability and dealflow, but it seems unlikely that “buying companies” as a business model is going anywhere.
Cycles happen, and 2017-2020 vintages are probably not in a great place right now, but undeployed 2022-2024 vintages could potentially be in for a very strong swing on the back end.
LP capital may dry up for mediocre funds that were kept alive during the bull run, and some players will no doubt exit, but then rates will come down, or someone will get creative with structures, or a new industry will develop, etc. and you’ll see things take off again.
Yes. Two decades ago pension funds had minimal alternatives exposure - now they’re overweight and lightening up.
Hence the ultimate exit option of starting your own fund eventually is exponentially harder - moneys been allocated to reups and building a track record too is much harder because the incumbent jokers getting fat on AUM management fees will buy anything and everything if it hits low-mid teens returns net of fees.
Better to be an entrepreneur raising money from flush idiots.