I came across this white paper from this guy. I really liked it. He talked about PE industry went from 500 billion to 8 trillion in 20 years mainly because of their „financial engineering“ similar to that of mortgage securities in 08.
He claimed unwinding in imminent and only a matter of time when.
What do you think? I myself have seen one too many people obsess about this profession recently, especially ex investment bankers.
One of the point I really liked from the paper was, PE firms care short term returns but the owner of a business actually cares long term. PE owners have no trouble firing people and raising prices but the owner on the other had do care about jobs pf the people etc. I have heard buffet shit about PE too in the past, saying they are dishonest.
Now am having confirmation bias or is there a real interesting story underneath?! Plus all the PE firms are at all times high, Ik that doesn’t mean anything but how long can a thing stay bullish?! Forever?!
Posted by iYashodhan
22 Comments
You’re a bubble.
It reminds me of the foreclosure market in Chicago post 2008. We were buying houses for cheap and making a killing on them. Eventually the competition grew and the supply dwindled. Now that whole thing we were doing is gone.
PE is similar. It’s unsustainable in its current form. Sooner or later there will be nothing left to buy and chop up.
I find deeper delving very interesting, personally. But can’t speak so broadly. (They get in and hopefully get out, business be damned, as far as I can tell.)
So the primary difference between private and public equity is obviously that they don’t have to mark to market and therefore appear less volatile and therefore higher sharpe ratio investments than public equity, but this is more due to opaque valuation versus any real risk/reward benefits.
If you need to liquidate private equity in a hurry you are gonna take a haircut.
That said it is a very broad umbrella of which there is a universe of both good and bad investments. It’s a category not an asset class, so it can’t pop like a bubble.
Private Equity is pretty much for tax right offs
More money will be printed before that happens
The reason PE has gotten so big is because technology has made investing in PE more accessible and more liquid.
Also the demand for PE has rose since it’s good for diversifying away from public equity. The actual demand for PE is huge compared to the actual market size so the valuations in the PE market will naturally be high and continue to grow higher
Plain bagel just did a video
Yea Apollo is a bubble for sure. Maybe Hindenburg can release a short report on it.
It’s starting to get a bad name, in a way that could snowball. Regardless of the actual fundamentals, people might not want to touch private equity because it’s private equity and it’s Bad.
In healthcare I think so, but income is limited by insurance reimbursement. I’m not sure that’s the case in industries that can pass cost to the consumer
This PE trope is way over-stated. Buy with excessive debt. Tax deductibility of debt juices cash flow Fire half the workforce. Sell off all the assets. Pass it on.
Not saying it doesn’t happen, but much more likely is to double the sales force and marketing spend to grow the top line. Remember PE deals are rarely held for less than 5 years. And of course someone has to buy it off you (more(?) often another PE. And they will be wise to your little ruse of firing all the staff to make the books look good.
Even if it isn’t a bubble, the business acquired by private equity probably would turn bad. So rather than the private equity you should care more about their impact on overall business. You should research Red Lobster and how private equity destroyed it, and they’re doing the same in a lot of sectors. So even if there’s no bubble in private equity, you should still be worried because the products and services you get would get worse. And the longer the schemes that private equity runs could work, the worse it would be because it proves that it’s profitable for them and would keep destroying quality.
Bubble butt
PE has been lying about their returns for years since the investments aren’t marked to market. One day it’ll correct
Underlying assets are physical. Supply is finite and demand increases with population. You can always invest in raytheon to hedge. I wouldnt worry until the nukes start dropping.
Source?
I work for a PE owned mature tech company.
All of the assumptions people have about it are true, albeit sensationalised. I work with a lot’ of smart commercially minded people.
PE people are fantastic at creating efficiencies within businesses. Less so growing them.
Would I sell my own company to PE? Unlikely, I wouldn’t want my staff to ensure the worst of PE practices.
At the end of the day, it’s up to governments to regulate PE or company owners to be more selective about who they exit to.
Every fucking thing is always a bubble by friend.
We all wish…
PE firms have different time horizons when it comes to fund cycles, they typically follow fundraising, investing, and exit. Some of it is firm mandate, client driven, business model (think agriculture vs software), etc. If there is a bubble in private equity, it’s not because of the holding period. It has to do with the fact that many firms are sitting on dry powder and have to deploy cash quickly to generate returns. The underlying problem with has to do with valuation inflation. The offset to this is if a firm is truly creating operational value add to the business and focused on EBITDA expansion rather than arbitrage in valuation multiples, then it works out. On the flip side, it can create a bubble, essentially it becomes “flipping” when they focus on multiple arbitrage, which has happened more recently due to the availability of cash.
Current portfolio cos bought with cheap debt. Exits will see multiple contraction.