was just watching the youtube video of Elad Gil interview Henry Kravis and one of key insight from Henry was about how young investors (relative given his age) struggle to take risk and need 50+ page IC memos to explain the business / feel comfortable taking a deal through. 100% accurate in my experience but also goes to show how much the firm / industry has changed because if you showed up to IC with a 5 page deck and your name isn't Henry or George you are most certainly toast. Industry has gone from 5 page memos and 25x MOICs to 150 page memos and 2.0001x MOICs
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You're absolutely right—this shift in the private equity (PE) landscape is a fascinating reflection of how the industry has matured and evolved. Based on the most insightful WSO threads, here are some key takeaways on this trend:
Increased Complexity in Diligence: The days of 5-page memos are long gone for most firms. Today, investment committees (ICs) expect exhaustive analysis, often spanning 50-100 pages, as seen in Golub Capital's approach. This includes stress tests, detailed financial forecasts, and third-party diligence to mitigate risks. The industry has shifted towards a more "academic" style of investing, requiring deeper thought and analysis.
Risk Aversion Among Younger Investors: As Henry Kravis pointed out, younger investors often feel the need for extensive documentation to justify decisions. This is partly due to the heightened scrutiny from LPs and the competitive nature of the market, where even minor missteps can have significant consequences.
Lower Returns, Higher Scrutiny: The shift from 25x MOICs to 2x MOICs reflects the industry's maturation. With more capital chasing fewer high-return opportunities, PE firms are forced to focus on operational improvements and incremental value creation rather than relying solely on financial engineering.
Evolution of IC Expectations: ICs now demand not just a compelling narrative but also robust data to back it up. This aligns with the trend of greater transparency and alignment between GPs and LPs, as highlighted in recent WSO discussions.
The Role of Technology and Data: The availability of advanced analytics and data tools has also contributed to the length and depth of IC memos. Firms are leveraging these tools to provide granular insights into market trends, competitive positioning, and operational risks.
While the industry has undoubtedly become more process-driven, the core principles of PE—identifying undervalued assets and driving value creation—remain unchanged. The challenge for today's investors is to balance thoroughness with decisiveness, ensuring that the pursuit of perfection doesn't lead to missed opportunities.
Sources: Mid-Market PE Valuations: Where Up is Down, Q&A continuation: Debating Trends in Lower Middle Market PE with the Founders of Nextvest, Private Equity vs Megafund Credit, Private Equity Interview Questions - 13 Topics to Know, Public Perception of Private Equity: A Discussion
No one at any of the MF / UMM or even MM funds is incentivized to take big risks, the whole game is to put up acceptable 2-2.5x MOIC deals consistently and not have any deals that lose money. If you do that and just keep progressing upward / retain your Partner seat, you'll make a ton of money. The career NPV of having a home run deal (4-5x) with higher risk is less than the NPV of having a 1.0x deal that forces you out of the industry
I agree, and this is what i hate about the industry. No one really cares anymore.
This is why IS/ETA has become more popular. The risk-reward is very high. You are really betting on your individual ability to structure, close and manage a business until exit, which involves a ton of different skills.
You can either be in the AUM growth/fee management game or take more risk and live with the consequences.
What does IS stand for in this context
Independent sponsor
A little bit off topic but for people currently in PE what would you say your average gross MOIC is across your portfolio ?
Realised or including unrealised
Lol
Including unrealized
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