Trevor Scott

Canada inches closer to a lost decade for house prices after factoring in inflation theglobeandmail.com/business/artic…

The warnings keep coming: "The private capital industry’s problems are far worse than Wall Street has acknowledged...A 'substantial portion' of the PE industry is already 'stressed or distressed,' said Tony Yoseloff of credit hedge fund Davidson Kempner. 'You’re not looking at a problem 5 years from now, you’re looking at a problem that exists today'...The hedge fund argues excessive leverage, weak cash flows and loose debt contracts have converged to create a ripe environment for corporate defaults." Again, my report on "The Retailization of Private Markets" (sageroadresearch.com/products/the-r…) argued that the can kicking and "greater fool" approach the PE industry was taking could backfire. To quote to the report: We came across this quote repeatedly: “Many PE players have raised their last fund, they just don’t realize it yet.” Arguably, this is the most challenging downcycle in the industry’s history. As of June, PE firms had roughly $3t invested in 30,000 companies. In a typical M&A cycle, $1t would have already been put back into the market. With under $900b in exits so far this year, the industry is still far below the $1.5t annual exit run rate pace that would be required to truly begin unwinding its $3t asset pile. And distribution challenges have sapped fundraising. Currently, more than 18,000 private capital funds are seeking $3.3t. Through the first half of 2025, PE funds worldwide had secured just over $420b. Rising rates in 2022 and 2023 catalyzed the industry’s struggles. Excessive enthusiasm during the low-rate regime, peaking during COVID, is playing a major role in the severity of the downturn. Bloomberg published the following anecdote in September. It encapsulates the industry’s struggles broadly: "When Insight Partners tried to raise another $20b flagship fund, it found itself offering mea culpas. Months into the campaign, the software-focused PE firm conceded it had invested too quickly before interest rates rose, buying assets near a market peak. Executives vowed to focus on returning capital. But contrition wasn’t enough. Even after trimming ambitions to $12.5b from $15b, the firm’s 13th fund closed in January with about $11.5b." In June, the FT’s editorial board published a call to action for the industry. Since 2023, many have hoped a macroeconomic shift is all that’s required to revive the industry’s fortunes. As we’ve argued previously, investors cannot count on a return to PE’s Goldilocks-era heyday. We’re in agreement with the FT: "Rather than twiddling thumbs, some PE firms are resorting to innovative—and risky—methods of generating liquidity…This includes creating so-called continuation vehicles and net-asset-value loans…These strategies buy time, but they are just a sticking plaster" Learn more about Sage Road: sageroadresearch.com. Interested in subscribing? Message me. FT link: ft.com/content/f77b28…