The Expiration Date for Private Equity’s Trillions in Dry Powder Is Approaching

In episode 8, Julie talks to Ignacio Jayanti, CEO of private equity firm Corsair Capital, which spun out of J.P. Morgan Chase in 2006. Before that, Jayanti had been on the investment team of the predecessor Corsair funds and managed the operations of the business for almost a decade.

Jayanti covers a lot of ground in this conversation, including how the model of private equity buyouts that took shape from about 2000 to 2021 depended on a growing number of potential PE acquirers for companies and a never-flagging IPO market where PE could cash in on investments. But he thinks that IPOs will remain “subdued” and that sweeping changes in the public markets since the early days of PE have added a lot of volatility and risk to this exit strategy.

Private equity firms can no longer count on selling their companies to competitors either. That bit was founded on cheap money and constant deal making, says Jayanti. Money is no longer cheap — and deals have slowed dramatically.

In particular, tune in to hear Jayanti’s view of all that dry powder — commitments from investors — that has accumulated at private equity firms. That will “reach its end of life…  some time over the next three years,” he says.

The industry must be watching and trying to forecast what investors will do at that point. They have every right to walk away from unfunded commitments. And if they do the industry will contract dramatically. “I'm just highlighting the fact that there's a very long cycle and rhythm to this market of fundraising and deployment and exiting, which has been very significantly affected to the point where there could be a period of time where the next upturn is actually quite a bit further away in terms of aggregate market size.

Ignacio touches on plenty of other topics as well, including a nuanced discussion about due diligence that you may not have heard before and the transformation that secondaries could kick off (in a good way.)

Thanks for listening. And let me know what you think, what questions I didn’t ask, and when I should have pressed for more. My email is open: jsegal@institutionalinvestor.com.