The industry's been on a historic run with superior returns but in this day and age there's so many dogshit-tier LMM PE firms competing over dogshit assets for double digit multiples and somehow still generating primary dollars with mediocre returns. And then you go upmarket and see MM PE firms playing hot potato over good assets. Everyone thinks their assets are the best, but how much more juice can you squeeze out of those already inflated multiples? One of the biggest concerns for PE firms these days in DD is who would actually buy these companies at exit and now you're seeing geniunely good PM tools like CVs continue to be used for assets that couldn't be sold. PE imo is an overcrowded commoditized industry where everyone thinks they're different and LPs are just ditzy asf and gladly throwing millions to mid firms that shouldn't exist. So why is everyone on this forum against an implosion to occur? Everyone has this great outlook on PE like it's still the 80s when it's not the case. I think a correction + consolidation would be great for the industry tbh.
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You are asking a bunch of people who have invested time, energy, youth, hard earned dollars and painful years into a career path that may very well be closing with no real alternatives - and you are wondering why there’s a reluctance to acknowledge some uncomfortable truths?
I think you can answer your own question.
“The first principle is that you must not fool yourself - and you are the easiest person to fool.” - Richard Feynman
People in PE scared to lose their own jobs like cutting hundreds of other peoples jobs isn't a regular operational improvement for their PortCos.
Many thanks for you insights at the forum, been checking all your historical posts and all these helped me a lot. Do you mind if I DM you for a small career advice? Much appreciated!
I don’t disagree but LPs have trillions of dollars that need to be put to work and that’s not going to change. Obv market conditions can affect fundraising in any given cycle but there is so much structural pressure pushing assets into alternatives that mediocre PE firms will always exist and people will just come to expect compressed returns.
LPs existed before private equity. PE TAM isn’t even that large - and on a risk adjusted basis it may be value destructive. At 0% interest rates sure - where else are you going to put it to generate your 5-8%? When interest rates are 3-5% you have a lot more options.
PE will exist. But (A) there will be a sizable decline from size today and (B) it will no longer be a growth industry which in this business model creates significant issues for career development and wealth creation.
I think PE capitalized off period of Corporate America where literally all u had to do was add interest expense and sit back and watch as ur company flipped it's switch back into gear. Now it's use case is gone (for now) but theres too many players fighting for too few opportunities and now great companies that need no help are being bid up to beyond FMV and now PE is running out of good investments that the industry is looking elsewhere. Music Royalties, Sports teams, Art, other fucking PE firms. I hope an alternative starts to make itself known soon so that LPs can have actually have alternatives to PE. Maybe that'll be Infra who knows.
Because PE isn’t imploding? Have you thought about what you’re actually saying? A slow down of fundraising and a few firms disappearing is extremely different than an entire industry “imploding.” That’s some real hyperbole. Talk to any major LPs and they’ll all say the same thing: PE offers a different risk-reward profile than other investment strategies that is important to their portfolios. They will 100% continue to allocate money in the long term to PE. The strategy isn’t going anywhere anytime soon. Anyone who sees a 12 month slow down in fundraising and concludes “yep, that’s it! The industry is dead!” is either playing into fear-mongering or is just plain stupid
Bro did u not read what I just wrote. Ur saying slowdown in funding, I'm saying the exact opposite like how tf dogshit PE firms with dogshit returns STILL fundraising? Ofc PE ain't going anywhere I literally said that what I'm saying is that there's too many players that shouldn't exist but still do somehow because LPs must deploy. But when does the music end because at some point a buyer will have to tap out from purchasing a ShitCo for a 20x multiple, and then some point the LPs needs to tap out on investing in a CV with an asset marked at 20x, and after seeing the PE firm can't exit, at some point do creditors need to collect principal + primary LPs stop giving primary dollars. But idek what's inhibiting that from happening but the fact it's going on for so long makes me think a correction is due.
Coming from LPs who's entire career is PE investing thus they have a bias to say this...CALPERS has no choice but to continue to give BX, APO, KKR billions a year to invest. The industry has had fundraising issues for 24 months now and it's becoming apparent that most UMM firms that grew fund size from $1b to $15b the last 10 years are dead...
Could you elaborate why UMMs are screwed?
Against meaning think it ought not to occur or that it will not occur
The other potential path is that you see a divergence between the firms who can manage their port co's better (and drive returns through actually improving the businesses) and those that have just been riding increasing multiples. And to OP's point, that likely means a smaller industry when the second group struggle to raise future funds, but there's a big range of outcomes as to how many that is and how big the impact on the industry is
I’d potentially argue that every single firm is in the latter category and some have been luckier than others
Because PE encompasses such a broad set of strategies and industries that as an investment style it's never going away. Will the generic over-leveraged vanilla buyout strats with little differetiation between them that have been popping up like a virus over the last decade be culled? Absolutely. Will PE in general be fine? Also a resounding yes.
Here's the thing, I almost think private markets are a clout game at this point. All these LPs know damn well there's barely any alpha left but alpha good luck finding another place to park a few hundred million. Now with interest rates up, there are more options on a risk-adjusted basis. Also, PE will never really go away given how multimodal all these firms are now - buyouts make up what, less than 25% of all AUM in MFs?
LPs can park their money in fixed income now and receive almost the same returns for minimal risk in a highly liquid asset. They don't have allocate anything to alternatives.
For the most part, PE ruins everything it touches and is a net negative to society. Raising costs, outsourcing jobs to India, and levering up might be the best way to maximize shareholder value, but it ruins businesses for employees and customers and hollows out Main Street. It really only benefits a select few extracting the value and is a bad deal for everyone else (including investors increasingly). PE-backed nursing homes and hospitals have a much higher death rate than non-PE backed - some PE firms are literally killing people to get a higher IRR. Fuck private equity, I hope it burns.
This is correct
Seems like you're still in school. Wait until you learn about market cycles. They DO exist
It’s a combo of things. First, we are all PE people. We have spent (speaking for myself) so much time and energy and sacrificed a lot of other things you can do or have in life with the idea that this will be worth it, important things like health and fun. The other thing though is that personally I have now observed two market cycles as a professional, which is one more than most people on this forum, and one more than even many senior people. I think my vintage has sort of a nuanced perspective because of this. I entered banking in a bizarre exuberance. No numbers made sense, decisions seemed to not make sense, but it kept working so I figured maybe I am the dumb one. Then the music stops and every portfolio is on fire. So I am slow to get too high or too low on anything. Life goes on.
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