YWR: Anatomy of a Private Equity Train Smash
The more I look at Private Equity the more I think the most important driver of investment returns for the next 10 years will be avoiding the PE/VC train smash and all its 2nd derivatives.
Look at the growth of this industry. As recently as 2017 it was only $5.4 trillion. Then it rockets at an 18% CAGR for the next 6 years to almost $15 trn.
Returns boom which causes more money to flood into the asset class.
Endowments like Princeton eagerly increase their PE allocations from 15% in 1999 to 39% by 2024.
Dry powder reached $3.9 trillion!
But like all trends, there are cycles and I see the set-up for a big unwind which will play out for years.
Live by Zero %. Die by Zero %
The Rate Pin
The Snake eats its Tail
From $14 trillion back to $10 trillion
This is Africa
Beware the Second Derivatives
Is your Life Insurer a PE Fund?
Reference Documents
The Key Assumption: Before I go further, I want to stress my key assumption in this outlook is that interest rates are more likely to rise than be cut. US 10 years go to 5-5.5%
And if so, this is how it likely plays out for Private Equity. Alternatively, if you think US 10 years go back to 3% this will all seem too negative.