How viable is middle market PE long-term?
It's pretty clear we're in a fundraising bubble (and credit, and valuation bubbles, among others). There seem to be an awful lot of middle market funds out there paying very high multiples for very okay quality assets and juicing their way to decidedly meh returns because all these nonbank lenders are giving away leverage like candy.
Maybe I'm just worried because of the economy, but I don't feel like any of these firms really has a competitive edge--it's just a matter of a ton of demand from LPs for PE investments driving a lot of substandard performance. When does the music stop? Are we just going to ratchet return expectations down over time or will there be a shake-out at some point? From the perspective of someone relatively new to the industry, is MM PE still a good place to build a career? I just can't imagine the industry being anywhere near as lucrative a decade from now.
Anyone have thoughts on this?
Bump - also interested
I don't think the concerns you outlined apply to just MM PE. Multiples are high all across the spectrum, and allocations to private investments from LPs have only grown. There will be changes to PE to come (idk what those are, and won't try and predict them), and those will apply to LMM, MM, UMM, and MF PE.
The one saving grace for MM and LMM PE is that there are a larger amount of target companies who fit this range of valuation. This alone isn't a reason to justify MM PE being more viable in the future, but having increased supply of potential investments shouldn't be overlooked when evaluating opportunities in MM PE.
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