Private Capital Investing - the only remaining active management space or the culprit for the next

“During the next recession these institutional investors are going to need to raise money somewhere and it’s going to be a public market because that’s going to be the only thing they can sell...”

Says Quadratic Capital Chief Investment Officer Nancy Davis in an interview with CNBC as per the article linked below. This is the looming danger. As alluded LinkedIn posts, when the next recession hits, once uncorrelated and small private capital markets could be the main culprit this time (alongside the mountain of corporate and consumer debt). Allocations to alternatives are at historical highs; from VC funds running into billions to record breaking buyout funds with tens of billions of allocations (Blackstone had to cap its latest at $25bn) almost every stage, sector and geography has seen record breaking fundraising in recent years. Deal sizes (and valuations), whether it is a seed, A or late stage round or a buyout, has increased multiple times. With over $1.1trn dry powder looking for deals, the froth in the private markets is not going away soon. Plus, private debt AUM has now almost reached to a trillion and presumably it is not the best type of structure to face a recession and defaults. Private markets might well be the only space where active management remains in the future but possibly not before clearing this looming hurdle and solve its liquidity issues (secondary markets?).

https://www.cnbc.com/2019/05/10/private-equitys-allure-poses-big-risks-for-the-stock-market-and-its-investors-in-the-next-recession.html