Private Equity's best days are over
A headline hitting today from an Egyptian billionaire in the Financial Times (link below). The wayback machine copy is readable below. I am inclined to agree. PE needed 2024 to be a good exits year and it wasn't. They needed 2025 to be a good exits year and it's been very challenging. Trump is ramping uncertainty and it's making things tough. There's a logjam, and how does that resolve itself?
Private equity’s best days are over, says Egyptian billionaire Nassef Sawiris
When Norway's SWF said last year it wouldn't do anymore PE investments, I knew the slow motion car crash was beginning
https://www.reuters.com/business/finance/norway-wealth-fund-should-not-…
They never were allowed to do PE in the first place (so never started), kept asking lawmakers for years. Suprisingly they for once did their job correctly
didn't the Ontario Teachers Pension do the same?
I tend to agree PE's best days are behind it (at least en masse). Norway SWF not doing PE has nothing to do with this though. They're so big they can't even do PE, they could invest in every MF and be the entire fund and still only get to like 4% weight in PE which is pointless.
Wrong, the Japanese SWF (GPIF, similar size as Norway's) is allocated to PE for example (granted this is small given they started recently). Norway has been barred from investing in PE due to their Parliament not giving them the mandate for it. The reason they didn't do it is because PE is a shit product and only serves to enrich a couple of boomers of dubious character and intellect
I don't think anyone is arguing that PE today has the same potential for a lot of people as it did 10-20 years ago. But it is still a great career and might still be one of the best risk adjusted investment seats when you compare to HF and others.
except it is not really investing until you hit principal / director and even then you mainly get told whats getting done by the partners. no real original thought left and your job boils down to being a glorified project manager / execution guy for the partners to invest
I think the debate should be whether it's worth it to leave banking or pursue an MBA for PE. We know the golden days of PE are done, but no one says what the alternative is. Banking gives more job security. PE funds kick you out after 2 years unless you're a top performer, they like you, and there's a slot open. I think going corporate is an easier discussion given lifestyle is way better and you know the tradeoff is comp. Odds are people reading this aren't gonna get an offer from a hedge fund so it's not worth discussing.
Do people realize banking is still heavily reliant on PE? If PE starts widdling down, so does IB...
I also think the boom times/asset inflation period is over.. My current motivation of getting into PE is that I think it would be one of the best learning environments after my MBB stint (not sure how it applies to IBD).
MBB taught me a lot but after 2-3 years you better gotta get out to not get too deep into the consulting kool-aid. Then the question is what else you are going to do?
Even if I am 100% realistic and don't expect to become a big shot top investor or make millions in carries anytime soon, I feel like even only ~2years in PE would be superior in terms of experience than anything else.
After that I can always move to corporate development, PortCos, etc. to tone it down a bit. But to be on the investing side once is for sure helpful.
agreed, ive been in PE for 5 yrs now (Straight out of school) and its become quite repetitive and monotonous. now granted most jobs become that after time but theres too many pe firms chasing too few good assets so you get stuck doing random portco and sourcing work
PE's business model has always been shit. After fees, the returns are atrocious. Its just all goes to the GPs. Glad the LPs are finally recognizing how shitty PE is.
Glad because ? You didn’t like seeing the GPs make money?
You sound like a hater
Guy didn’t get the carry he was praying for
Private Equity as an industry? Two things can be true:
This is not true.
What are the most attractive areas to get into now? Credit/secondaries?
There can only be so many secondaries deals / haircuts before NAV becomes meaningless. Secondaries used to be used for retaining longer ownership for trophy assets or offloading zombie assets to crystalize carry.
Now its just an exercise to exit unsellable assets and shift liquidity between sponsors with very questionable alignment.
DPI from CV's is not sustainable...
However in the short term, it's not a bad place to work on either the sell/buyside
GP leds are low single digits % of primary AUM. It’s not going to bail out the system
Do you think it’s worth pursuing as a current associate from a career perspective?
See a lot of these posts recently and also some of the same usernames commenting throughout. Some of the above is certainly true, but at the end of the day it's still PE. If you're able to do well in the industry and find a good seat, I think it's still one of the best risk-adjusted returns of any white collar job. If you're interested in it and like the work, the value prop is still there. Just my two cents. Also not to be cynical but of course some of the bad rhetoric comes from folks who have left or been forced out of the industry.
I echo this
I agree as well but as someone in the industry I can't overstate his comments on "if you're interested in it and like the work."
This is so important. This job actually sucks and no amount of "risk-adjusted" makes this seat worth it if you don't enjoy it or most of it. Please keep in mind as you think about recruiting for PE
But is this actually true if funds are struggling to raise more capital or do not meet anywhere close the target returns then they did during the QE period?
If you take those things together, I'm really not sure if it is risk adjusted to be a great place to be in compared to the other upper end of professional services (lets not compare it to the total universe of jobs, that does not make any sense).
Also, realistically, how much is the work environment going to change to the worse? In my consulting career I observed pretty rough times (for the whole firm but also specific verticals/clients) and the morale, culture and behavior of seniors was like night and day compared to the good times. What I am saying: in the past ~15 years most PE guys have been used to sell assets at very attractive returns, making boat-loads of money in the process. Culture already in the "fun" times varied between places, but I just imagine how bad/intense it can get if more and more assets do not perform and on the other hand the pressure keeps increasing to deploy capital that was raised already. These all look like forces that make life inherently worse for juniors while at the same time the upside is decreasing. When I went through such times in consulting the whole "work hard play hard" changed to exclusively work hard no play; alas: reduced bonus, reduced fun-stuff (ski-trips, summer events on island, company parties) but increased senior nervousness who grinded you to the bone.
Re risk adjusted returns:
For example, in management consulting, there is a very straightforward (almost cookie-cutter) path to partner that really doesn't entail too much risk and is not conditional on some highly unlikely promotional pathway (as I heard is the case in PE). Partners at my firm (but especially senior partners, which is less plannable) make a boatload of money and that for me would be a pretty low-risk way (there pay is not contigent to any asset performance, etc.). I heard even more insane stories from my friends in big-law of senior partners bringing in 2-3mn+ (Europe not NYC) while working probably ~50% of my consulting partner hours.
The whole schtick of PE has for me always been outsized pay due to outsized investment returns (carry) paired with generous fees paid by LPs. Now that we see a turn of market forces it makes sense to assume that both come down. What then remains is still a f*** ton of work/effort/grind with vaporizing upside.
Am I seeing this wrong?
You are spot on, just give time to the PE principals to cope with their unlucky life choices, they don’t have anything else to hang on to.
I am 100% going through that at my fund, shitty environment leads to increased pressure on the fund itself (managing costs, i.e less employees for same work, other shitty processes to maximize productivity like staffer and sharing resources across teams and sectors, more regulatory oversight leading to increased BS work). This industry is a great place to make money, but to claim the grind is worth it to end your life with a low to mid 8 figure net worth is laughable. If you can use 10% of the industriousness and grit required to succeed in PE to some other growing area of the economy, you will end up just fine and with your hairline intact.
FWIW, I spent several years in MBB consulting and have now been in MM+ PE for several years. I agree the partner path in MBB is more 'straightforward' but I actually found it much more unbearable / unimaginable. I still don't fully know what an MBB partner does (after spending several years observing them), and in consulting generally couldn't figure out what success vs failure looked like. At all. Sounds crazy but I think it's actually much more "clear" in PE what success vs failure looks like, and the couple key things you need at each level to keep progressing. It's harder for sure. But for me personally I can grasp it much more clearly, which is one (of many) things I like about the industry much more than consulting.
People were bearish on PE in the 80s after the LBO boom, after the 08 GFC, and bearish on software PE as a whole too. After 08 there's been a decade-long bull run that helped prop up PE. Now, there's definitely a question mark surrounding PE's viability going forward now that ZIRP is over / the current DPI crisis & asset logjam, and maybe your carry marks aren't totally accurate at the moment, but a lot of the fears have been overblown -- I dont think it's marking the true death of the asset class like a lot of people have been saying.
And past is predictive of future? You don’t make a logical point here nor address any of the valid points raised on dpi, higher rate environment, rise of secondaries etc
Great comment. Can I ask what level and location you are in?
That is the thing though, Private Credit, Asset Backed Finance, and MMHF are less mature than PE and from the perspective of a student/analyst agnostic between these fields and PE (let's face it core skillset for all of these is the same), you should pick one of them vs PE right now (simplifying).
What matters is not the trajectory of these fields (fee compression is inevitable), rather the "spread" among them. That is what new prospects should focus on.
Pe is over, all of you kindly exit the field with your funds and stop competing for deals thank you
Zero cost call option holders
Call me a moron but isn’t most capital is along a gradient of common to senior secured debt?
PE is just a deal and management conduit at its core. Thinking about it as an entire asset class seems to be a bit fallacious to me. Maybe most PE firms out there “suck” relatively speaking. But does that really mean PE’s best days are over?
Who is going to buy mature companies? Roll up Mom and pops? Unless we’re moving towards a long term world where assets just get liquidated and die, I’m not so sure this is true. And even if we are, the best investors will find ways to raise capital, bid on the opportunities and get paid for it. Whether 2/20 remains the standard is TBD. I think there will always be some level of fear and greed and frankly diversification FOMO that will prompt rich people to search for market beating returns. And people’s promises to yield high returns seemingly magnify up stream until the SWF/pensions underwrite big checks, because, well, they can.
Even if they don’t need it, it’s akin to gambling and somewhat of a pass time. Some of it will be in public markets, some of it won’t. The real economy is probably still decades away from complete liquidity.
Yes, it’s all just investing at the end of the day, wherever you’re putting your dollars in the cap table and whatever return you’re receiving. You’re betting on the company.
PE is saturating, as has everything in the past, as will everything in the future. Does it mean the asset class is f*cked? No. Obviously not. It will tend, as does every industry, towards a state of narrow imperfection.
Personally, I’m very interested in PE, perhaps obsessed admittedly, and much like another comment, I’m happy and will go on enjoying it.
I think the general trend on this thread is that people are upset that the movies and stories we’ve grown up on, of corporate raiders, KKR & Blackstone’s meteoric rise, and seismic carry pools are no longer.
As Sinatra recalled, that’s life.
Find what you enjoy and you’ll get paid. My mate is in insurance, not my cup of tea, but he’s 28 and is on £190k. Yes that’s GBP. He loves it. This is a fairly stock ceiling for any mid range corporate job these days, you can sell your soul in IB/PE for little more.
The only way you’ll ever make 8/9 figs these days is by being a founder/starting something new.
I think it's more the bang average, zero differentiated firms will ultimately die out. Pure economics. Doesn't really matter on size, if returns suck and you look and sound like everyone else you'll die out with time. We're already seeing that with a lot of the UMM firms IMO.
“Public equity’s best days are over”
- your great grandfather, January 1930
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