Have we seen the last private equity billionaire?
The more I think about it, the more I just don’t understand how this level is feasible, even assuming great GP economics. The “20” part of the fee math appears to have been totally obliterated by competition at the MF size necessary for the “2” side of the math to work out, you’re not going to get the same kind of gross MOICs of scale targets that you used to, and leverage isn’t as available as it used to be. To get deployment out the door you need to probably boost your partnership ranks quite a bit, too, which splits the pie even more. At the veeeery least, it feels like if you reach these levels, you’re doing it at an age where you’re essentially just doing it for your late-life philanthropic decisions and your kids’ inheritances. And it’s not like VC where individual deal ceilings for the hits are high enough to offset any of the above. Am I missing something / have you guys done the math on this?
Yes. Nobody is going to become a billionaire off of working at any of the MF/UMM PE shops that currently exist. There is no next Jon Gray at Blakstone or Boro/Spaht at TB to the same way there was in the past. PE is at a similar stage as HF's reached a while back: which is a very mature asset class. You can become a billionaire as a MM/UMM PE founder depending on returns, but you will have to deliver outsized returns. This shouldn't come as a shock to anyone: most billionaires are people who founded their own thing not those who worked for others. The math behind even being a 1bn fund LMM PE founder when considering investable universe and range of possible returns is heavily favorable to being a MF PE partner, especially at a public MF fund.
Many firms still charge 2 and 20 or even over that. It's just that those funds are all in the Middle Market and usually are the ones who are massively oversubscribed but do not want to scale too quick. Know KPS for example charges well above 2/20 for every LP. Think some of these high-flying MM/UMM firms are also 2/20 for everyone with no discounts to large names. The better demand for your firm from LP's the better fee structure you can ask for is a general rule of thumb here.
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