PE was a 40 year levered bet on declining interest rates. Now that the Fed is taking away the punch bowl, party's over.


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Ok, Cassandra. What will happen is what happens to public companies - the optimal cap structure will shift to account for a higher cost of debt, multiples will come down and investors will focus on cash yield. Were many companies over levered off made up EBITDA? Probably, but there are equity cure covenants so it’s unlikely you’ll see a lot of bankruptcies. There will be no “blow up”. Returns will come down, vintages will be held longer and maybe some funds go out due to performance. It’s growth / VC that will see the largest correction.


Blackstone Coach coming in hot


I hope this is true. Y’all make too much money and I’m jealous


nah, PE is sitting on huge piles of cash ready for a correction to buy things at a discount.


@SrAssoc1 do you actually think PE firms just buy and sell companies? That’s totally wrong, they generally do a ton during the hold period to add value, it’s not uncommon for the company they’re selling to have a totally different story from the one they bought

Mostly agree on VC and early stage PE. (RIP blockchain funds)

Disagree on late stage PE.


TINA - there is no alternative

It doesn't matter. The game is beating public markets, which are also poised to underperform under raising interest rates. It's s relative, not an absolute game. Investors will always be attracted to the incremental returns from the liquidity premium (industry wide) and alpha (for good firms).


Everyone thinks differently. To me, it’s a combination of both and capital allocation. I have money in both (public and private) but at a certain %. Also, don’t forgot to hold cash at this point in time

I think everyone is missing the point here. Once rates rise to a normal level, capital allocators can get incrementally better risk adjusted returns in fixed income and more $ will flow to that vs. PE than before. There's also the notion of getting a return on CASH (4-5% sounds great!). All about opportunity cost and attractive returns. Equities (Public/private) have been the only game in town the past 15 years. Public equities have become a retail game now. PE will def be impacted, aside from those with good returns. It's more expensive to fund LBOs and valuations are lowering. Game is over for PE. So many of these MM firms who raise $ to roll up gas stations only to flip to another sponsor will be out of biz


Sure, that I agree. If you are in a bottom quartile fund, you’d be out of a job soon anyways

Let’s be clear. Fund raising is not even linear, it’s almost logarithmic. The top quartile funds get the lion share of the money. Second quartile gets the scrap and rest get nothing


I think if you are undifferentiated in your ownership approach, yes, your fund was primarily engaging in financial engineering that was ultimately dependent on cheap debt to achieve an above market return. And the party is going to stop very quickly there, though this will be somewhat tempered by valuations going down as private/public companies face the same re-balancing of their capital structure.

For firms that have more of an “edge” in terms of operations and value creation, they’re be able to weather more of that storm and be competitive. Sustainable differentiation and segmentation is going to matter a lot more in the market environment we’re heading into


I don’t think P.E will be damaged in anyway.

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