Is Everyone Too Bearish on PE?
Feels like a lot of the PE sentiment on here right now is basically: too many PE people, not enough seats, carry won't hit, nobody gets promoted, fundraising sucks, PE is commoditized, returns are dead.
Are people extrapolating a the current environment too far?
PE (like any other industry) has always been cyclical and if exits open back up, DPI improves, fundraising follows and firms start deploying more aggressively again, I’d think the narrative changes pretty quickly. A few years later everyone could be talking about PE like it’s the promised land again.
Obviously PE is more mature and returns are probably harder to generate than they were in the 2010s but I'm not of the belief that there's a genuine secular decline. Will there be a great PE renaissance back to the ZIRP PE days? Probably not, but that’s different from saying the industry is permanently declining. I think there's a strong case for deal volume and fundraising recovering substantially, PE grows again and economic growth and new investment themes create another deployment/fundraising cycle.
What am I missing?
bump
I'm 6+ years in PE, have been actively following this PE forum since Q4 2025 and agree that the sentiment is overall strongly negative. However, I do think there's a lot of truth here (I also talk / cross-check this sentiment across my own real life PE network).
One big factor we can't control is timing. Since the past ~3+ years, the PE industry overall is struggling across several factors (DPI, fundraising, etc) and the mid-level in PE is feeling the most heat IMO. There's (1) little lateral hiring at the mid-level for people looking to switch funds and (2) those in mid-level seats (including me) don't see a great path for promotion given fundraising challenges -> no room/need to add additional Principals/MDs.
Given PE is really up or out, I can't just stay being a VP forever / another 3 or however many years until fundraising improves so there's a spot to become Principal at my firm (do I really know how many years that will be?) I'll probably be pushed out soon if fundraising doesn't improve. My MDs can always promote someone below me to VP1 if needed, use them for a few years and then repeat that process.
With that said, I imagine there's some people in desirable PE seats in terms of culture/returns/promo odds (there has to be at least some) are probably less likely to be posting on WSO. If I were them, I wouldn't want to post about my PE firm here and have a bunch of people applying / competing with me lol.
Definitely sympathize with the timing risk at the mid-levels. I would think tho that if that keeps happening for 3-5 years and then the cycle turns and deal activity/fundraising picks back up, the people who actually stayed in active seats and kept getting reps become pretty valuable. You’ll obviously also have people who benefited from the timing and got promoted through the trough, so I don’t think it creates some massive shortage, but I could see the pendulum swinging the other way and firms realizing they have a lot of mid-levels without enough real reps to run things independently.
The timing risk is also fatal though from a monetary perspective (in addition to all the career points mentioned above). The cash comp alone (particularly if not at a mega fund) does not justify the sacrifice of the job. If it takes 10-12 years to fully deploy and exit a fund and that fund results in a carry donut (or a carry donut across two closely timed vintages) the entire career was basically a waste. Then even right now with the industry “in pain” multiples haven’t really come down much on assets that do actually do transact so there’s not much confidence the next vintages will be good returns either.
The compensation is so deferred and so long term you can’t really afford for a fund or two to not work out. And if they’re not working out whether or not you even have a career left is questionable.
The industry isn’t going anywhere and small group who have a bit of luck, love the game, work exceptionally hard, and are really good will end up doing well. But the job is crazy overbid from young finance folk considering the sacrifice, the fact the vast majority won’t even make it past associate to even get enter the carry pool, and then many of those who make it past that will be sitting on carry donuts despite excelling and grinding for a decade.
More PE funds than mcdonalds, 8,000->4,000 public companies, seeing shitcos we are pitching on where we have to fuck with the compset to drive up the desktop valuation because MD said sponsor paid 20x on entry.
I think the cheap debt from historically thin credit spreads (also due to overfundraising) has extended runway a little bit, but everywhere I look there's an implication that the PE industry has in the best case scenario reached maturity, in the worst is possibly a complete bubble.
8,000 > 4,000 is a wild comparison
I've seen this stat quoted quite a bit but has anyone thought about its accuracy? I've always doubted it was correct so I did a quick fact check using Pitchbook. If you filter for PE firms in North America, with a growth equity or buyout strategy (ie excludes RE, PC, infra, secondaries, FoF, VC), and firms that have raised at least $250mm and have at least $250mm in dry powder (ie excludes zombie firms or now defunct firms), the total number of firms that fit that criteria is less than 700... compare that to the number of lower mid-market to mid-market companies which is >100k by many estimates (National Center for the Middle Market defines U.S. mid-market as companies with $10M–$1B of revenue and estimates nearly 200k businesses....)
I agree that competition has increased a lot and from my own experience it appears there are too many firms chasing a limited opportunity set, but let's be factual when we're throwing figures around
PE prospective returns are ugly. There is a natural inclination to bet on some cyclicity when it comes to investor sentiment. Problem with that in PE is two fold with the second spring from the first.
Recent investments have not been good (2018 on unless you were able to catch a covid bubble bid on a quick turn or your asset ended up with an AI theme). Nothing controversial about that as has been discussed. The composition of those poor returns however is unfortunately from v low DPI and bad marks. Meaning nobody has taken the medicine bc the incentives aren't there for it. Delay marks (which also means no DPI) as long as you can while hoping to raise a fund around your existing marks. Meanwhile the accounting treatment of secondary trades provides some evidence that hey these valuations are kind of real! But without any actual clearing. And it all is kind of working? Like some funds really are raising around them so makes sense to try.
As a result of all this, prices have not come down and firms have not closed up shop. Even more importantly, capital hasn't left the system. So entry valuations are still incredibly high! Ok so we're not paying 20x for hvac any more cause that was so so stupid. Never again! But now only 17x which is big time lolz. The math barely works any better there and especially not with base rates 300bps wider. That buyer needs a similar exit plus decent growth/cheap M&A to squeak out something reasonable.
Unfortunately I don't see any thing changing there until capital leaves the system and that probably takes 3-5 years given everybody's incentives. Not bad for keeping the very full mgmt fee/cash comp system going but carry will be tough.
Though maybe we get lucky and Mark Walters is the spark to blow things up and we get to reset at healthy levels.
Yup
Not just prospective returns, past returns (5-10years) have not been that great from an institutional LP perspective but it is not that obvious because there is no good benchmark info, track records are frequently recut, heavy use of credit lines etc. You see it when you look at PE portfolios of big LPs who have to disclose and when FOF show performance of unlevered separate accounts.
Returns shown in pitch books are not what most LPs have actually achieved.
Are you in PE now? What are most of your mid-layer peers deciding to do then or have they already started to leave the industry for other spaces? If so, where is looking like a better place to position oneself (startups, corporates, secondaries, VC, LMM etc)?
I'm not. Was mega tiger cub for 10yrs in distressed credit/fins after a few years in banking. Fell into a couple operating roles at PE roll-ups that gave me a window into LMM aggregators to MF PE. Plus lots of friends in direct lending.
I frankly thing the whole system is in trouble but that it will be a slow blow up. LMM is where you have convexity plus a decent runway given the delay in their cycle - but it's a much sketchier world in terms of ethics, people aren't as clever so you might learn bad habits, and the assets are in probably even worse shape vs expectations (participants are proving very slow to realize that this buy and build game is over). Also the non-blows are actually failures here - what do you do with these aggregations that didn't really work (call it flat to down 10% org EBITDA roll-ups that scaled)? There are TONS of these and unclear who buys them. Hopefully you have a larger roll-up that isn't too screwed and they can do it. All that said, LMM will absolutely have winners even if things are tough so perhaps the convexity is worth it but I would make sure the upside is actually there.
Secondaries are great in that its a brain dead job. Definitely great pay for what you do even if its a lot less than elsewhere. Hopefully people keep the party going with the ASC 820 driven BS. I think everyone realizes its stupid but incentives aren't there to call it out. So maybe keeps going despite it being stupid? I dunno. Would make me nervous just knowing that its all so silly.
Corporate seems risky. Getting on the wrong team or with wrong mgmt just sucks. And its harder to figure all that out until you are in the seat until its too late.
I hate to say it but I'd probably just hold on as long as you can at an up market PE situation. The pay is absurd by any reasonable standard and the prestige factor is something that is really hard to get back. Everyone is complaining about lack of upward mobility and carry not being great. Who cares! The base/bonus comp is still so so good relative to anything else available.
Personally, I love hedge fund/public market roles but they suck in terms of financial risk/reward. Such a high chance of getting fired/fund shutting down plus very good odds of bad comp years (like being 30 and making 250 cause your fund didn't perform - which is very often the case!). Yes you can ton it - but most likely you won't! That said, it is so so so much more interesting. I would have jumped out a window by year 3 in PE (or more likely been fired by year 2) due to the rigid constraints on what you are doing. But if you are made for it, it is fantastic risk/reward even in todays bad environment.
Looking more and more likely your Mark Walter thesis could be coming true. The Aquarian news is definitely pointing to a potentially broader contagion. Still the early innings tho
Agreed - i think the Guggenheim situation itself will take a few months to blow up though looking more and more likely that it will. regulators really want to find an off ramp so are giving some time. And probably another 6-12 months from there even if guggenheim goes bad.
IMO there’s a huge bias on shitting on PE as an asset class in order to justify people’s desire to not enter the industry because of the shitty hours / work environment. Seems very similar to the RE forum - bottom of the cycle, no carry being realized in recent vintages -> people think its doomed. Like RE, I’d argue that PE is similarly cyclical (although over a longer-term time horizon), the people the stay with it during the downturns will probably be rewarded when the market shifts. And that’s coming from someone who left for an operator role
Especially for large-cap PE, the foolish idea that you can generate alpha in mature assets is hopefully sinking. Your job is to get 2x and then pass the parcel. LPs don't care about IRR anymore, it's all about DPI, co-invest opps (At the large cap end) and absolute returns. The days of money printing from 2009-2020 are over, which gave this industry a decade long, buoyant tailwind. The only thing PE as a whole has left in my view is; 1) targeting the private wealth function for fundraising and 2) P2Ps, take-privates - some markets outside of the US are fragmented and stupidly cheap, you will see more PEs launching opportunistic takeover attempts
It's just rates man, that's all it is, PE's bull market was simply a correlation to other bull markets and abnormally low interest rates / tons of liquidity
So if we somehow get materially lower rates (not my personal belief), the PE bull market starts up again
Its not really the rates (I mean yes, it does certainly play a part) but its the multiple expansion/contraction.
It doesn't take a rocket scientist to figure out that if you're able to buy something for 15x and sell it at 18-20x you're going to make a lot of money. Problem is, as someone else mentioned, all these assets starting from 2018 that have been bought at high valuations need to be sold now.
Well guess what, no-one is buying that 20x business (which really should've been 16x tops to begin with) for 22-25x. In fact, people are looking to buy those assets at 16-18x now and for quality assets only. If the company is struggling? Good luck getting even that. Well maybe multiple contraction is okay (newsflash: its not) , as long as maybe you've organically grown EBITDA by 20%+ CAGR as outlined in the base/bull case but nope EBITDA growth is half that (and even that is dodgy and adjustment filled) so now we're stuck in 1.0x - 1.5x MOIC land where people are hoping that markets return or maybe they can hold it for 1-2 years longer and squeeze another 0.2-0.4x return. Oh and as you mentioned rates going up eats into returns as well so there is another headwind on top of everything mentioned.
This industry needs a reset. Continuation funds / secondaries while could be useful vehicles at times is a bane of existence (looking at Clearlake) as it lets a lot of crappy funds hang around. I'm assuming you know all this, just typing it out for other folks / ranting.
Rates bro. Liquidity. Money sloshin around. It's all related.
Is secondaries a better place to be then?
Sentiment is very gloomy, but PE is cyclical. Once financing costs stabilize and exits pick up, fundraising optimism will return quickly.
What the hell does this even mean lol, when “financing costs stabilize”
If you’re can’t make money without ZIRP, then you’re cooked
I think PE will remain in the doghouse for a bit because everyone bought at the top and now they can't get any more multiple expansion out of one another in a sale to another sponsor.
So rather than quick exits with returns driven by financial engineering, which this industry has become accustomed to in ZIRP world, I imagine we'll see the recent vintages take a while to play out as people need to wait for organic business growth to take place in sufficient quantity to outweigh flat or contracting multiples.
Over time this dynamic will, I think, be eroded by secondaries which give investors more flexibility to move in and out of these pools of private companies with fluidity, which I think will lessen the harm of managers not being incentivized to exit on a timeline LPs want.
The whole asset-class is completely cooked and everyone who tells you different is drinking the kool-aid.
PE as a novel asset class in the 80's and to some extent in the decades following made sense. You offered access to a vaster array of assets, that previously had been largely (instituionalized) uninvestable. As such, there was a lot of alpha, because competition on the buy-side was low and improvement potentials in the targets generally high.
Now fast forward and you have a gazillion of different private capital funds, all doing the same thing and flipping around the same companies. Returns are naturally compressed and on top of that the ability to improve has drastically decreased, because the majority of private companies already underwent a massive wave of professionalization.
On top of that you have a lot of momentum and growth in public markets.
How on earth does it make sense to do an earth-shattering amount of due diligence, including grueling hours for everyone involved, on some random mid-cap industrial asset. Lock up your money for years and have it illiquid. Then sell it 5-6 years down the line in the hope of a meager 15-20% IRR whereas at the same time JUST HITTING A BUY BUTTON on a freaking public markets index WITH ZERO DILIGENCE AND 'OH CAN WE RAN THIS SENSITIVITY ANALYSIS ON PRICES IN PERU' will provide you FULL LIQUIDITY AT ANY TIME with SAME OR BETTER RETURNS and NO FEES.
Now don't get me started on "thats not how asset allocation work" or portfolio theory. There is no diversification in private markets, all you are doing is levered-beta on some small-cap assets. The only reason why LPs kinda digt the asset class is because the valuations are shenanigans and not marked to market so you can always pretent your asset value did not decline when reporting annual figures.
Look you can think about this industry all that you want but I just can't fathom anymore putting in 90-100 hours week for such a useless type of work. There is no value generation it is just a commoditized process-type of service. Everyone somehow knows that but it is hard to cope with it.
This is too bearish. It took decades for public equities investments to shift from active to passive, in the mean time there was fee compression and outflows but the investment teams were still paid well and some did exceptionally well despite the structural headwinds.
Is this negative sentiment towards large cap PE or the industry as a whole?
Hard to believe it is as bad in the LMM
bruh chill
So why havent you left? And what will you do instead?
Still interesting work, I work with great people and it is well paid. I am on the fundraising side and over the past 15 years the market has become more competitive in many different ways and fees compressed (lower headline fees, discounts, co-invest etc).
Now everyone will think "yeah dude but what are you doing now?". Let me tell you that I reflected upon this question for a while. Naturally I am limited in my skills (cookie cutter economics/business graduate, finance experience, some internships in consulting, PE). So unfortunately I don't have a PhD in computational linguistics or advanced physics that could position me at the forefront of the most recent innovations such as AI. Nobody is waiting for me to apply to such jobs.
I am not a corporate guy so that does not suit me well either and on top of that a variety of industries are facing headwinds which also does not make it a fun place to be around.
The depressing, but in my opinion rewarding, choice is to go into an RX environment. We are getting closer and closer to a big bust (see e.g., long term govt. bond yields reaching highs only seen in 2008, strains in private credit, bankruptcy/restructuring waves in major European economies) and a majority of industries are facing MAJOR disruptions be it induced through AI (e.g., TMT/SAAS) or geopolitics (e.g., German automotives).
I have buddies in RX (European view) that are massively overburdened with inbound requests and have to turn down projects because they are fully booked (both RX IB and consulting houses). This industry is primed for massive, secular growth over the next 10-20 years. While typically cyclical, I am predicting a much more medium-term high demand in the current environment.
Now people say in a gold-rush you get rich selling the shovel. I would turn that around and say in a cooked economic environment you get rich not by investing or running companies but advising their lenders, investors and management teams during crisis.
If you do that well and build a reputation for it you will make significant $$$ with less pain and grueling hours than in the other sectors.
sounds like an opportunity to buy assets out of distress
Tbh know a few RX guys who think about launching their own 'mini' fund to do exactly this.
10/10 first two paragraphs
Are you pivoting to RX then?
Yes that is the plan. I have a couple of buddies in RX consulting and IBs. In RX consulting, I have some finance backgrounds who made the switch there and love their life.
Pay is really good (albeit ofc less then IB) but the work hours are typically ~9-8pm with regular dinner together w/ team afterwards when traveling. Wrt pay, however, I heard crazy things on senior level. Lets not give too much on anecdotes, but my read is that if you are good and have build somewhat of a book you will get paid very very well already really early as a partner/MD. Contrast with strategy houses (e.g., McK) where the pay is more sort of a lockstep model and as a young partner you get shafted in compensation because all of the comp flows to the senior P. level who typically hold the relationships to the big-time F500 counterparts.
They tell me hours ain't bad for the majority of projects because you have two phases:
a) heavy/DD-style of phase: this is when you come into a business and have to do a diagnostic under a super tight timeline. Hours are tough here as well and stress level also higher as you need quick results and readouts for the financing stakeholders (depending on the state of the business it is close to running out of liquidity)
b) chiller/long-term project phase: this is when you have done the initial plan and potentitally already received further financing/stakeholder commitments. In this phase you are actually on the ground to steer the transformation. This means much less hours because there is only so much you can do and your work is more making sure everything runs smooth - ex bankers/finance people are typically more involved with all things corporate finance, i.e., liquidity planning etc. and very close to the CFO/controlling departments
From my intel what I liked about the opportunity:
+ Very mature environment; not a lot of junior professionals (i.e., the alix partner model) and "eye-to-eye" culture with senior leadership; means little top down/BS/analysis/non-value add work because that is not how RX works
+ adding to the latter point: most work (in current phase) is actually inbound through network, i.e., MD has relationship to workout groups at banks or to large corporate that is nervous about their contracted supplier (e.g., automotive OEM). This means there are no shenanigans like you have in IBD/MBB when it comes to 'client development' and 'pitching' alas doing tons of meaningless work that will lead to nothing. The only client dev. my friends did was writing reports e.g., on debt-market environment
+ personal point: pipeline to CFO roles/career. This is almost impossible to get these days from MBB or straight out from IB. I know several of RX friends who went into interim roles first and later transitioned to full-time CFO roles at rather young age (~early 30s). I am personally interested in developing into a CFO and RX is the perfect training ground for that because you will be deep into the weeds of all things corporate finance + steering a company through crisis
+ overall culture: also maybe personal but it is no nonsense/BS type of work. No corporate blahblah, no "we are solving the worlds toughest problems"-MBB type of delusion, etc. you just need to get work done and have and show real impact. I feel like there are very little careers that offer that type of environment
Dislike:
(-) Traveling: ofc that sucks already being a McKinsey consultant but there at least you have a ~80% chance you will be in a tier 1 city with a Ritz Carlton or Hyatt. This might sound arrogant, but there is so much else that follows this i.e., quick travel through close-by airport, healthy food-delivery options (if food-delivery at all), decent hotel gym for workouts, etc. - some people like the travel but I never liked traveling for business
(-) Operational work: depends on what suits you and what you want to learn but you will be in the WEEDS and need to find solutions also with people far outside the C-Level. If you like the PE type of thing where you just dial in into very high level/process type of DD work and talk to mgmt. teams then this for sure might not be for you. For me, personally, I would like that exposure. It would help me to actually run a business myself once. I honestly despised a lot of the over-academic analysis type of work that is done in PE, because I personally always had the feeling there is zero value add in most of the analysis that have been run (i.e., some crazy price sensitivity analysis in some niche geography that you need to turn around for the n'th time)
I don’t think people are bearish enough honestly.
I think most people can't see the forest for the trees when it comes to capital markets. People will say there is too much bloat in PE and they are right, but that's not by accident. The industry grew as more and more people saw a real path to wealth creation for themselves since the returns were very real and more investors wanted exposure to this type of asset class. We had large institutional pools of capital who were all chasing high returns for decades for endowments, insurance companies, pensions, wealth managers, etc. and the fundraising for PE firms were relatively easy and they hired a lot of people to deploy it. This isn't breaking news to anyone. But a lot of people kept breaking off and starting up their own shops and claiming they knew the right value-add levers to pull to actually generate returns. Like most people on here know, you can generally skate by 1-2 fundraises without blowing up if you can deploy capital efficiently and bat close to .700 on achieving average returns. People were bidding up values though since more funds were trying to deploy capital and natural inflation and incremental multiple expansion achieved what was needed to raise the next fund.
All the "easy" returns allowed for the next generation to think that PE was simple and the quality of the firms were eroded as more and more offshoots sprung up. For all the decades that we are removed from the time that PE was genuine value-add and professionalized small businesses that were common in the mid-20th century, it will take to return to that time. It's all a cycle. There are still thousands of unsophisticated, tiny, "macro-cap" businesses that most institutional PE firms won't touch because they don't have the experience to take on that challenge and don't want to fail a couple of those investments and ruin their funds. Those businesses will get professionalized, rolled-up, and consolidated by bigger strategics, bought by larger funds, or grown to be major players in their industry. The PE firms that can facilitate this will continue to grow and the firms that can't will start to see a decline or implode. Without ZIRP, many funds will not be able to fundraise again and that's a good thing. It means that the bloat is being taken care of.
The natural course for companies are either go under, get acquired, or grow. There always needs to be an exit for the capital. There will always be a need for PE firms at the LMM, MM, UMM, and MF levels to continue the natural lifecycle of companies. The bloat at each level will undergo natural selection and the number of firms will normalize. This period of contraction will be seen by people only looking at the next 5-year horizon as a doomsday, when really it is just natural cyclicality. Unfortunately, that means that a large number of people will lose their jobs (or they lateral out of those firms before they implode) and the carry that people were counting on never gets realized. Almost certainly this will cause a lot of younger people to avoid the industry all together and chase "safer" career paths. This too, is going to contract the industry naturally as every firm can't keep hiring unless they lower the quality of hires, and that'll lead to their decline as well. At some point we will hit an equilibrium like all asset classes and like all aspects of the economy. This equilibrium will be a launch point for the next wave of growth for the industry, and we will continue this cycle.
There will always be good deals being done in the private markets and LPs will hunt for the managers doing these deals, keeping the industry alive. If you're reading this and genuinely love the work being done in PE, then ride the wave and you will definitely see the results at the end. It might not be the same results as the current 60-year old that got to spend the majority of their career riding the wave up and getting off at the top, but if you get off on the way down you most certainly won't see the other side when things improve.
TLDR: Do things look crappy in the short run? Yes, probably. Does this mean that PE is dying? No, absolutely not. Keep riding the wave and try to look at the big picture.
One culture shock for me about the PE path is let’s say you put lever on your carry on fund level (aka deals you don’t drive and have very little say about). You will pay interest on it every month and at some point you have to pay for the principal too and what if your fund doesn’t do well and can’t exit / liquidate by the time you have to pay for principal? Uh oh. So the whole carry concept only works if you really believe in your fund’s availability to execute and I would no way put money on deals I don’t drive.
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