Where is the ‘easy money’ today / tomorrow?
It is commonplace to hear people talking about the easy money in buyouts in the 80s - early 2000s, the first few fund of fund structures, tech VC until recently, etc etc.
What is the hot area now that won’t last. What are some for tomorrow?
Theoretically it might be private credit, but the economics seem terrible to me. The return profile is sub par, and the LME aspect seems like squeezing the last bit of juice from an old lemon that one of the aforementioned buyout golden age guys threw away.
My friend, that is the trillion dollar question that drives this industry and whose answer you'll never get from anyone who knows.
I think there are always areas are too hot, and people freely brag about economics / volume
Flow through shares were massive when they came out, same with bought deals.
Sustainable finance was absurdly profitable for a few years when oil companies figured out they could get cheap debt if they said some BS
Crypto exchange arbitrage was an absurd profit center
Japan carry trade until recently
Etc etc
There is always some super hot area at the present that participants in it know isn’t going to last!
Secondaries right now
These climate strategies are dead before they barely started
Wdym? I thought it was a growth area for most firms (esp MFs)
It was until 2-3 years ago when people realized returns sucked and that it's no better for the environment to mine from slave labor in Africa/China to make all of these "clean" energy sources.
Growth for AUM from dumb LPs with an ESG boner. They're not making money with them, and the ones that are are the ones finding some BS way to finagle "ESG" into otherwise totally normal/non-ESG-oriented companies i.e. XYZ company is pro-LGBT therefore buying it is ESG lol
NAV financing is another hot sector right now. Time will tell how long that lasts
It’s really hard to know and anyone that says they do know is wrong. I will note, on a long horizon, usually the money is made by going where people aren’t, not the currently hot sectors. It’s kinda like bitcoin—do you really want to hop on the train now? Maybe. But there’s decent odds the bottom falls out in the next few years and you are the fool jumping on in the back end.
The buyout boom was largely facilitated by declining interest rates from the 80s to today. Borrowing to buy companies is pretty fantastic when it gets cheaper every year. Likewise, when multiples expand any clown can buy a business and make money. It wasn’t known whether that would be the case back in the 2000s for example. Also, being clear, PE hasn’t really beaten public market performance since 2006. Also, there’s a ton of evidence it is getting more concentrated among top funds.
Private credit is like any shotty credit investment—it looks great until it doesn’t. Whether that industry is a good place to be depends on your view of the economy and if we are late or mid or early in a cycle. If defaults go up, that could be a painful place to be. It isn’t new investing in shotty credit—it always has the same result. A stated yield of 15% looks fantastic until defaults happen and you lose principal or someone doesn’t pay interest for awhile or lending agreements get restructured and then you end up at a return that matches high credit bonds.
As people mentioned, that still leaves some places to play where deals seem to be better because everyone else isn’t there. But I’m not going to tell you that.
Bro typed out a whole response to say "I know and I'm not going to tell you" lol
Honestly, it's helpful giving some guidance on places to fade imo. I'm obviously not going to explain my firms strategy. But, it isn't hard to figure out where capital is tight/ investors can get better value. That said, as mentioned above, it really depends if we are late cycle or not and/or if you have a long or short horizon and/or if you have any belief in fundamental analysis or mean reversion. Building a career in either PE or PC rn seems like a path to disappointment though. Being a faciliator of things like NAV loans, continuation vehicles, etc. is prob lucrative for awhile.
Anything you hear about on here won't be it...Smart/good investors don't shout their strategies out to the masses...
Easy money =\= good investment. Think about the scene in the Big Short with the guy bragging about commissions on MBS
"easy money" is the same thing, people are doing it out of sight and don't tell anyone because once it's known it's gone...
It'll be some niche strategy with very little aum capacity, I know some guy doing whisky aging or some shit but he's doing well. Lucky dude was a Thiel fellow as well
Anything remotely attractive gets jumped on so fast so that any attractive return attribute gets arbed out and correlations to the market converges
I’m in the secondaries space and there is a certain archetype of dudes you see who all seem to be making a ton of money doing some combination of these things:
You can never tell whether these guys are brokers, allocators, investors, consultants etc. but they’re everywhere and always seem to be tied to the big UHNW and HNW cities like Dubai, Miami, London, Genève, HK, etc. They 100% make a shit ton of money doing whatever they do. These guys must be reincarnations of East India Co. traders or whalers. Respect.
Damn I’m in banking and I don’t know what most of this even means
This is the dumbest comment I’ve ever read on this site. Very few people doing this style of work make anything noteworthy
There are certainly a lot of these hustlers. The barriers of entry for doing something like is are really low. Know a ton of people doing this (they typically find you) but don't think anyone is driving a lambo and many quit their shops quickly. It is a good side hustle though
Can you elaborate how this could be a side hustle while working at a pe shop. I might be stupid but how the fuck would someone get paid to set up a dinner, wouldn’t the guests they were paid to bring find that really strange? Or paying to get a family office intro?
ABS and junior debt
SRT / CRT
It's the guys with absolute crazy ideas that are willing to work 100 hours a week on it that will have the best return. The contrarion that isn't saying no just to say no. Guys like that will lead the next boom. The sharp guy who is going off to an odd thing.
According to Marc Rowan, it's PC and that dude seems like one of the sharpest dudes in finance.
For Apollo it is because it’s more AUM and plays into their fee model. I wouldn’t call it easy money generally though
He says PC because it's a management fee trove for his firm that he owns a significant portion of...Same as Blue Owl saying they love PC, why wouldn't they say it?
Good friend of mine works at K&E, and he says secondaries and litigation financing seem to be hot at the moment. All service providers to the secondaries must be laughing all the way to the bank. I have heard that the total transaction fees sometimes make up a similar amount to the new cash coming in. I guess that's the benefit of having spineless LP reps.
Also have an acquaintance providing data center services to the banking and insurance sectors. They market themselves as a secure service provider that will take care of any costs associated with hacking, data breaches, or system failures. I said it sounds like picking pennies in front of a steam roller, but they outsource the risk to an insurance company. However, he doesn't know if they will pay out, and when, in the case of a security breach. They have a 60% EBITDA margin so he's just praying that things will be fine long enough for him to retire.
I reckon ipos will see a pop in the next 2-3 years
..
Perferendis consequuntur dolor velit beatae similique excepturi. Consectetur nihil perferendis accusantium in enim. Aspernatur alias quam consequatur repudiandae. Iure et rem quia possimus. Qui possimus aut voluptas minima nemo repellat.
Ducimus quis ullam et dolorum rerum earum perferendis voluptatem. Numquam veritatis recusandae illo occaecati quisquam amet aut. Enim et repellat dolorum sed qui. Suscipit incidunt voluptas nostrum quia voluptas veniam. Nobis est inventore laudantium veritatis.
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...
Est officiis non explicabo dolorum. Et dolores quibusdam facilis. Accusantium quas aperiam non temporibus delectus rem deleniti. Ducimus mollitia consequatur rerum amet.