Investors Warn of ‘Rot in Private Equity’ as Funds Strike Circular Deals
nytimes.com
Investors Warn of ‘Rot in Private Equity’ as Funds Strike Circular Deals
Thoughts on Private Equity
tldr; Private Equity funds use highly optimistic assumptions. They only make their investors money when interest rates decline - like big, illiquid, leveraged shorts on Treasuries. It's gonna get ugly this decade with rising rates. Most people don't understand this. (excerpted from our 2023... See more
There are some important changes underfoot in private markets:
1. Returns are compressing - few funds are able to consistently achieve the necessary spread over the risk-free rate to justify fees and illiquidity.
2. LPs are segregating bi-modally: 1) a growing group of smaller family... See more
Chamath Palihapitiyax.com
In 2009, @a16z raised a brand-defining fund. The plucky EMs — on a mission to steamroll the @benchmark model of VC — are believed to have delivered >5x for LPs from AH Fund I.
Much of their founding story is at-odds with how the firm is perceived today:
Describing their strategy in 2009,... See more
Risks to the trend
- LPs too slow to react, VCs lack incentives to admit limitations in current processes
- Poor quant performance
- Downturn in private markets
Katelyn Donnelly • Quant comes to Venture Capital
"In the early days of Valar, a lot of VC’s passed on us because they didn’t believe we could raise the money."
Yes, VCs will pass on a company out of fear that other VCs will pass on it. This is institutionalised insecurity.
Venture capital emerged from opportunity of frontier technologies;... See more