Is PE Fu.cked?
Is PE fucked?
Clearly it's been a private + public market bubble the last ~5 years, and now the chickens are coming home to roost.
More tenable in the public markets (where you're marked to market) than private.
Lots of equity has flown into shit-tier businesses for years at double-digit+ EBITDA multiples, just because (gotta win the bid bruh).
Floating rate debt max pain in a negative growth topline environment is no bueno.
Multiples will be depressed for the foreseeable future. EBITDA will be slashed. Exit liquidity about to be as dry as the Sahara.
An entire generation of PE bros with phantom paper carry since ~2017 are about to be taken out back.
What's the end game?
Is “phantom paper carry” an allocation of accounting gains based on latest fair value of an investment?
Not super familiar with how carry works.
It's carry that doesn't materialize because every investment at bubble valuations gets significantly marked down.
Interested to hear what others think on this
Not if there was value creation!!!
L/S 100%
Commenting here just for visibility (unrelated to your comment).
ALL - OP dropped some anti-Asian hate speech, unprompted and completely unrelated to anything on this thread in a comment farther down. Take that into account if you think OP raises any valid points. This is an all-around loser that is bitter about not making it to to the buy-side IMO. OP will probably edit comment but is a racist. Glad it’s the people like that are rooting against our industry. We don’t have a place for you on this side.
- From a relatively conservative guy that can’t be in the sun for more than 20 minutes without sunscreen / probably blinds people that look at me too long when I’m in a pool.
Couldn't happen to a more deserving group of grifters to be honest.
Pe has been laying off people and cutting costs(creating low quality/ non durable products) for awhile to realize synergies and boost exit valuation.
No sympathy for PE to suffer a bit.
agree with this 100%. nice take
Who hurt you?
Isn’t your job selling companies to cost-cutters?
This. Where does he think those "synergies" are coming from?
If history repeats itself the ones who caused the suffering will unfortunately not be the ones who suffer.
I see what you're getting at but look at it this way - at an 8% hurdle rate with 20% performance fees, the sponsor would keep ~18% of those returns (yes they get paid mgmt fees, whatever) so the remaining money is going to the investor (a large portion of which is money being managed for retired people, teachers, police, firemen, etc) so is PE really the bad guy?
Based intern. Please enlighten your peers who have yet to develop mentally.
Lol just stay in your lane and take your cut of the pittance paid for organizing the pony show, making models nobody opens and occasionally doing extremely manual analysis when we tell you to. Just wild to see our vendors on here wishing for us to fail, you must be miserable. Let’s play out your ideal world… we don’t do that and let these businesses underperform. PE scales way down or goes away. Banking fees down. Bankers laid off. See that logic? That’s what you’re rooting for?
Your “burn” is something a college kid whose never been close to a business or CEO would say. Clearly have never had to fire anyone either. Yeah you the banking junior knows how it should work. How many board meetings have you been in? Any current seats? Yawn.
Also, why did you sign up for a job to work for people you view as grifters? Weird move IMO. Oh and those synergies ultimately fund your retirement plan.
Ofc some are getting fucked over, it's not a government job after all. If you have been living somewhat conservatively and prudent enough and you are not a shit tier performer who made shit tier decisions, you will be fine.
Everyone bought into Securities at inflated valuations over the past few years. Public equities at high multiples, private equities at high multiples, real estate at unsustainable cap rates, bonds at absurdly low rates. Yes a lot of PE will get culled from infrequent valuations, but I don’t see why the strategy would die. It’s not like crypto where you’re trying to prove a new security exists, you’re buying businesses people use every day like toll roads, clothing companies, or service providers. I’d also caveat that on the interest rate point, lots of firms got favorable debt terms with portable capital structures so it’s not as bad on that front
What do you mean portable capital structures?
Typically, debt / leverage has change of control provisions meaning a new owner would need to raise fresh debt or refinance.
With portable debt, you can essentially inherit the 'old' debt under new ownership.
Think of buying a house which already has a mortgage, and the mortgage has a 2020 fixed rate. Very appealing!
The pain is only just beginning. New funds will attempt to come to market in the next 12-18 months, but LP fundraising is dead thanks to low distributions and the denominator effect.
Will be curious to see how fast 2023 allocations dry up.
Firm just raised an oversubscribed fund north of $1B in this "dead" market. Quality funds with legitimate returns will continue to receive LP support, funds that should never have existed to begin with will die.
Exactly. LPs won’t just stop allocating to the asset class. They are just going to consolidate their exposure to their best partners. GPs don’t forget who rode with them when the market was shitty and some of my firms best GPs are legacy commitments because we stood by them through tough times like the Great Recession. Now, we have access to top quartile PE and VC funds that are always oversubscribed and get to pick and choose their LPs due to demand.
It’s harder for funds that have never returned a find yet to raise and funds new to an LP to raise (unless they are an exceptional firm the LP wouldn’t typically get access to). Some firms are raising third and fourth funds without their first fund even being close to the wind down stage, each time target AUM growing substantially. That type of shit is probably tough rn but the blue chip GPs will always get an allocation.
Not sure what shitty fund you’re at but we are about to close a double digit billion flagship, good funds will continue to raise money and will continue to generate returns
Continue to raise, sure. Generating returns is going to be different after ZIRP.
The first part, yes, but the second part about returns we will see. Leveraged loan market is dried up. Exit environment is trash. The asset class is coming to a quick halt but the benefit of the asset class is that they can wait it out and extend their fund until the entry/exit environment is better. Not to mention that funds will be able to buy assets for cheaper than a year or two ago. The firms that bought assets at peak valuations in 2021 are gonna have a tough time though for the 2019-2021 vintage.
Infra PE has been having a bit of a reckoning. I think previously a lot of things looked good when you chucked 50% gearing at 3% all-in. Now it's getting to the stage where your equity returns are barely higher than your debt returns (pre-tax). Construction costs have shot up from inflation, rates have shot up and all of that drops IRR's, but your returns above bond yields has fallen because bond yields have risen.
The only benefit is we still need a lot of infrastructure and someone has to build / own it.
One thing that the infra guys is doing is to increasingly buy PE assets that traditional sponsors would compete for under the guise of it being "infra-like".This in part (not wholly) mitigates what you are saying since they are able to bid for higher risk assets with a lower of CoC, and still have sufficient spread between Eq Returns and CoD
Yup, see a lot in European healthcare. But, sometimes they underestimate the operational risk and it blows up, which isn't great for them
Fund I'm at is planning to sit tight (more or less) in 2023 and looking at 2024 pipeline. Not sure how this will happen or a good idea but let's see
What kind of work do you expect to be doing if the fund wont do deals for a year? Is it just random portco work or expecting layoffs?
Lots of 'market mapping'
Second the above^^^ would they wind down headcount? Or maybe just hiring freeze?
Idk man don't think they are gonna lay off or a proper hiring freeze but have slowed hiring. I'm just running "quick numbers" for P2Ps but nothing is actionable before Q1 (imo). For those on portfolio, it's making sure they do lots of small M&As and increase pricing.
Such a thought provoking take.
Sour grapes.
What’s comical is OP taking a schadenfreude victory lap despite lacking the intelligence to know that very few people are impacted in any meaningful way. That’s the beauty of the PE game. You’d have to be stupid to not be playing. Unless you’re at ground zero (eg, Tiger Global), not much has changed for you. If you are at TG, you made $10-20m+ over the handful of years and are now out of job.
Better question is what happens to all the morons who made a bit of money in crypto/NFTs, thought their intelligence as finally vindicated, quit their jobs and then saw their entire (paltry) net worth evaporate in levered bets on tech/momentum right before the nasdaq melted.
Great reply. Business as usual at my MM firm. Strong historical returns and stable current portco performance. Just finished raising (will be oversubscribed) and hiring selectively as we grow. I have friends at tech-focused growth equity firms that are telling a different story though
LMAO nice retort, but your industry is fucked man. We are late cycle and you are in an asset class whose golden years are in the rearview mirror. The 40 year bond bull market is over (along with ZIRP and QE-forever). I hope you were able to realize some fat carried interest checks 2015-2022 bc the senior partners made off like bandits and those days aren't coming back. There's a reason why most big/mega funds have long since transitioned to being AUM herders. Anway Bloomberg did a decent synopsis on zombie PE funds this week-
https://www.bloomberg.com/news/features/2023-09-24/private-equity-zombi…
And tell me, did you come to this realization before or after you failed spectacularly at getting into PE?
I truly believe that if all these people that rejected you knew what a bitter little man you’d become they probably would have given you some constructive feedback instead of laughing you out of the room.
Shame on them.
Quas adipisci provident omnis dolorem ratione recusandae. Ipsa illo sit inventore perspiciatis et error in. Sit voluptas harum delectus. Saepe error non praesentium omnis iusto repellendus sit. Quaerat adipisci ea omnis fugit ut.
Occaecati praesentium iste necessitatibus exercitationem qui eos quos eveniet. Corrupti excepturi voluptatem ut odio autem. Neque omnis dolorum autem in maiores nam fuga quod. Est omnis non atque exercitationem voluptas quaerat similique. Earum repellendus nemo porro. Neque fuga corporis nemo voluptatum deleniti expedita alias.
Aperiam ut eos saepe quo rerum vel minima. Illum culpa animi iusto qui odit. Dicta beatae quidem enim nesciunt alias est iusto. Omnis cumque aut sint suscipit consequatur aut eos id. Culpa ut occaecati commodi sint quaerat eum.
Mollitia itaque ut explicabo inventore. Neque quas voluptatem est sit aut laboriosam.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...
Facere in adipisci harum deleniti voluptatibus animi. Non exercitationem voluptatem molestiae deleniti atque eum. Ipsa quaerat consequatur et eos. Voluptates est aut facilis optio at. Nam accusamus et qui commodi voluptas fugiat.
Neque ratione voluptate doloremque vitae. Ducimus vitae ea est dicta aspernatur amet. Pariatur quia dolores sit minima est quod ea. Odio sapiente distinctio eos dolore. Tempora et deleniti voluptatem ipsa qui tempora quibusdam. Non soluta ducimus nesciunt porro quod aut consequuntur.
Nisi deleniti saepe et explicabo voluptatem cum perspiciatis. Sapiente sunt voluptatem repellendus cupiditate eum aut. Tempore accusantium commodi alias dolor deserunt placeat ut. Error optio qui magnam omnis harum.
Deleniti atque non soluta a et est. Nam sed architecto qui et commodi aut. Et eveniet atque aliquid ea dolorem id.
Est nesciunt aut ipsa ipsam magni quia. Et neque esse qui voluptas accusamus. Voluptatum unde in nobis vitae sunt. Rerum minus fuga beatae fugiat non molestiae. Officia et tempora labore molestias. Dolorum et est voluptatibus et omnis. Asperiores autem corporis eveniet voluptatibus itaque dolores fugiat.