Insight
Charles: Market shifts impact PE firms by scale level more than strategy
“Changes in the market impact firms that share a level a lot more than firms that share the same strategy. That's pretty unique. A level eight infrastructure firm and a level eight buyout firm are impacted by the market in more similar ways Than a level two and…”
Opinion
Charles: Many private equity firms fail to justify illiquidity net of fees
“First of all, have you generated enough alpha to justify taking illiquidity from the client? A lot of firms, the answer is no. Especially net a fee and carry.”
Prediction Not checkable as stated
Charles: Private equity faces a massive maturity wall in 2025 and 2026
“There is a maturity wall coming in 25 and 26 for a ton of firms who've been able to bootstrap it and scrape through the last three or four years.”
Prediction Not checkable as stated
Charles: High-performing PE firms will miss fundraising targets in coming years
“There is tremendous unrealized value and unrealized gain Managed by really talented people and the firms that they're a part of are going to come to market in the next 12 to 24 months, and they will not achieve the fundraising target that they need to feed all…”
Insight
Charles: PE buyers are now suspicious of assets sold without continuation vehicles
“Well, now, if I'm a sponsor, and I'm getting a book from another sponsor, and they're not CV-ing it, I'm a little suspicious.”
Opinion
Charles: The private equity asset class is currently 10% overvalued
“We think the asset class today is overvalued by about 10%.”
Opinion
Charles: Only a third of mega PE firms have true competitive advantages
“If you have firm level OCAs that are transferable across strategies and across markets, you can be a high conviction alpha generator across products Across industries, size strata, but it is rare. I bet only about a third of those level nine and level 10 firms…”
Insight
Charles: Private equity GPs ignore broad market data outside of fundraising
“When you go talk to a GP, they are so hyper focused on their business, on their strategy, on their team. Very rarely do they have a perspective on the broader market. They tend to pop their head up every three or four years. And go ask for money. They're not i…”
Assertion Not checkable as stated
Charles: Only Ares, Apollo, Blackstone, and KKR reach Level 10 scale
“There's only six firms at level 10, and they are enormous. They look more like Goldman Sachs than they look like Arctos. Aries, Apollo, Blackstone, KKRA, it's the biggest of the big.”
Assertion Not checkable as stated
Charles: The top 700 private equity firms control 90% of capital
“Those 15 firms, which is .2% of the universe that we track, controls about 20% of the AUM. If you go down just two more rungs that go level seven to level 10, those 700 firms control 90% of the capital.”
Assertion Not publicly verifiable
Charles: Top wirehouses committed twice as much capital as top institutional LPs
“Last year, the six biggest LPs in North America committed about fifty-five billion dollars to funds. The six biggest private banking and wire house platforms committed about a hundred and ten billion dollars to funds. It's two X the number.”
Assertion Supported
Charles: Top-tier mega-firms raised $250B via captive insurance and wealth channels
“In the last 12 months, The level 10 firms in our framework have raised two hundred and fifty billion dollars from insurance companies they control or through the wealth channel with sales forces that are theirs.”
Assertion Supported
Charles: Private equity distribution yield is currently historically terrible
“The yield of private equity today is as bad as it's ever been. You're in the bottom quintile of distribution yield right now.”
Assertion Supported
Charles: Private equity drawdowns doubled to $40B and NAV tripled in five years
“Over the last decade, while distributions have been very consistent at 40 a quarter, Drawdowns have doubled to 40, and NAV has tripled in the last five years, so the yield has just nosedived.”
Assertion Supported
Charles: Average distribution yield today would beat PE exit records by 25%
“If you just get an average yield on all of the accumulated NAV, this year would be the biggest exit year ever, and it would exceed the best year ever by about 20, 25% in dollar volume of exits.”
Assertion Supported
Charles: Inorganic transactions account for 20% of recent PE exit activity
“By our estimate, between 15 and 20% of all the exit activity the last two years has come from inorganic transactions.”
Prediction Not checkable as stated
Charles: Some PE Wealth Products Will Deliver Expensive Beta, Not Alpha
“If the packaging costs more than the alpha, then we're just selling people a bunch of really expensive beta, and that's not good. I think some firms are going to do a really great job helping bring some of the benefits of this asset class to a much broader par…”
Insight
Charles: Sports teams offer massive tax shields for private equity billionaires
“Sports properties create a huge tax shield. They are not correlated with healthcare or tech or finance. You're not allowed to use a lot of leverage. So if you are a titan of private markets, You have a lot of levered exposure to all kinds of equity, and you ha…”
Assertion Supported
New York Yankees equity compounded at 9.7% annually over 115 years
“Over the last, I think it's 115 years, US inflation has run at an annualized rate of around, I think it's 3.1%.
US public equities have compounded at around a 5.9%.
And equity in the New York Yankees has compounded at 9.7% per year for a 115 years.”
Assertion Not checkable as stated
North American sports leagues restrict franchise debt to an average 14% LTV
“So an owner is not allowed to use their team as a piece of collateral on a loan. And the leagues regulate maximum leverage at the franchise level to the point at which across the big four North American leagues, the average loan to value is about 13, 14%, whic…”
Assertion Not checkable as stated
Pro sports franchises returned 12% to 14% annually over 20 years
“It has a correlation to traditional asset classes in the U.S. Of between -.2 and positive .3. And over the last 20 years has generated Compounded returns of 12 to 14% per year, which is about a 500 basis point premia to the S&P 500.”
Assertion Contradicted
Research shows 90% of alternative asset managers generate no excess return
“And if you look at the research, I think it's something like 90% of the managers in alternatives don't create any excess return. Not a fee and carry.”
Insight
Charles: Complexity in private equity management companies grows non-linearly with scale
“The management company, the GP, that is a complex business. And as the firms grow, And mature. That complexity increases in non-linear ways.”
Insight
Charles: PE emphasizes value-add because leverage and asset pricing remain prohibitive
“We think it's because it's time to do deals, the cost of leverage is prohibitive, pricing is prohibitive, so you've got to craft a narrative about how you can do great deals while still buying at full prices with very expensive leverage.”
