Patrick Boyle On Finance Private Equity’s Quiet Crisis!
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Oct 19, 2025 Private equity is facing a growing crisis as firms struggle to exit investments, leading to stalled distributions and concerns about outdated performance metrics. The reliance on leverage for returns is under scrutiny, revealing a fragile system. Despite promises of diversification, the reality shows a reliance on stale pricing and hidden risks. The push to include private equity in retirement funds raises questions about high fees and limited transparency for retail investors. With rising interest rates and regulatory backlash, is private equity still a smart investment or merely a façade?
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Exit Problem Slows The PE Flywheel
- Private equity faces an exit problem: firms struggle to sell investments at attractive prices, reducing distributions and fundraising ability.
- The industry is sitting on trillions, but the raise-deploy-exit-distribute flywheel has slowed significantly.
PE Is Small-Cap Value With Extra Leverage
- PE primarily owns smaller, slower-growing, heavily levered businesses unlike mega-cap tech driving public markets.
- That makes private equity comparable to small-cap value plus large leverage, not to the S&P tech winners.
Leverage, Not Operations, Drives Returns
- Leverage (60–75%) is the dominant return driver in buyouts rather than operational improvements.
- Heavy debt amplifies returns but creates fragility when interest rates rise.