In this new Real Conversation, Hedgeye CEO Keith McCullough is joined by Dan Rasmussen, founder and CIO of Verdad Advisers. The topic of this discussion will be Rasmussen's thought-provoking research note on "Private Equity Fundamentals." In it, Dan warns investors that, "Rising interest costs and multiple contraction could spell trouble for institutional investors' favorite asset class."
This is a must-see Macro webcast that will illuminate the trouble ahead for investors and the market implications.
Followers of Hedgeye research will be familiar with our call that Fed easy money combined with a booming economy created "The Mother of All Bubbles." With the opposite now true (i.e. Fed tightening and contracting economy), our view (since January 2022) has been that this Mother of All Bubbles is popping.
Dan's data intensive take in "Private Equity Fundamentals" suggests...
Growth seems more challenging in a wobbly economy, and the tailwind of rising multiples has disappeared. Private equity sponsors will likely need to have difficult conversations with their lenders and focus on operational execution to manage costs as they navigate a less friendly macro environment.
From a quantitative perspective, the fundamentals of sponsor-backed companies look frightening. Yet private equity remains the darling asset class of sophisticated investors, with many endowments and family offices nearing a 40% allocation The financial fundamentals look far less attractive than one might expect, given such high level of enthusiasm.