This is more or less the point made in the first half of this video (from Codie Sanchez - ex GS / self-proclaimed Entrepreneur / PE investor). Note she then pivots to benefitting from the “silver wave” by buying cheaply and then run smallish, boring, but profitable businesses - a proposition quite a bit different than actually having a juicy part of PE’s mostly passive-investing lunch (but I disgress).
Anyway, some of the salient points she makes in the first half:
IPOs are increasingly getting delayed, which often means, private investor cash out in the companies’ highest growth phases, while index / ETF investors get the leftovers, post-eventual-IPO. Mainstream sources back this up, although Vanguard has a different take (albeit on a shorter time horizon)
the number of publicly listed companies has declined, so index / ETF investors own a lesser share of the economy (also visible, although not in a dramatic way, looking at the Fed’s Z.1 data which hints at in ‘valuation share’ however doesn’t capture the full breadth)
regulatory developments don’t help - they may make it less attractive for companies and CEOs to go public
PE are struggling to achieve the type of return they did a few years ago in a number of industries. And they aren’t seeing the opportunities to put their dry powder to work - hence sitting on roughly 3 trillion in unassigned capital.
I work in oral health and the PE funds in the industry, including monsters like KKR, are, as you say, struggling to get anything like the multiples they deem acceptable. From my perspective, and that of my employer in Basel, that has meant a shift from PEs as removed backers and owners to active asset and operational managers.
I’ve watched the distribution drought firsthand over the past couple of years. But more than private equity, I think it’s private growth that’s eating index investors’ lunch.
Look at OpenAI, Anthropic, Stripe — and hundreds of other great companies that now IPO to cash out rather than to raise capital. Or at least that’s no longer the main reason. I’ve watched Anthropic go from $68bn to $180bn to $965bn, and now possibly $2tn. That’s all growth public index investors simply never had access to. With much less private capital, they would have become “buyable” by regular people much sooner.
The picture is more complicated than that, of course, and I don’t think it’s private equity per se taking the lunch away.
That said — my starting assumption for a generic $20bn buyout fund is 11–12% net to LPs. Too much capital, too much competition. And it’s hard to say no when people are willing to pay you 1.5–2% on capital plus carry. I’ve lost whatever respect I had left for GPs showing up to LP days in suits and ties. They mark down when it suits them and take every opportunity to mark up. Amazing experience — if you’re an uneducated LP.
Anyway, I got carried away as usual, so I had to ask Claude to make this legible.
Two years ago i said to my team that 2025 would be one of the best vintages to get into VC. Time will tell. But in general, i’ve seen VC funds from 15 years ago going absolutely nowhere. But the managers made anyway a lot of money.
No, i meant that VC typically charges 1.5/2% on committed capital, not invested capital. So they make money no matter what. Now, a portion of it is for operational expenses, and for some that’s actually all of it while they keep the carry.
Its not Provate Equity or Venture Capital thats eat all the soup produced during privat growtg stages - its owners and senior management.
This Investment period is defined by excessive greed, turbo capitalismn with zero moral and an excess for capital that wants to be invested. As long as there is too much capital, no Investment no matter private or public, will make a sensible, sustainable return. You can only hope for speculation gains as valuations go from crazy to insane.
But thats not the Problem, the Problem is that the capital originates from the before mentioned greed in combination with turbo capitalismn. And the Investment bubbles will stop exactly there. Meaning:
very large corporates will go bust as management greed destroyed the businesses‘ operations, potentials and customer base
legislation will restrict capitalismn particularely on labor laws, product liability and environmental/social impact
Taxation will eat into existing wealth accumulation
We can just hope that this process won‘t be too violent.
In favor of VC and Private Growth (which today it’s basically a sub asset class per se).
Take Anthropic as an example, without this capital it would have never been able to fund itself. Now they are making 65bn ARR and on track for 1.5-2tn$ IPO. But at the same time, what will be left for the poor guy like myself who invests in equity indexes? Who funded Tesla and SpaceX at the beginning? The most revolutionary companies are emerging from the private market, with some exceptions, i’m sure, but i can’t think of any of them (Nvidia and chip companies were just “lucky” that the world started adapting their products to AI).
If you are referring to corporate governance and not fund governance, 100% agreed. It’s not supposed to be like that, but it is.
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