TIP565: Why Buffett is Doubling Down on Japan w/ Dan Rasmussen
We Study Billionaires - The Investor’s Podcast Network
The Effect of Higher Interest Rates on Company Earnings
Higher interest rates are not a significant problem for US large caps as their net indebtedness is low. Good companies borrow long and fixed, while bad companies borrow short and floating. Thus, rising interest rates do not pose a real risk for investors in public markets. However, private equity and private credit face a real problem with higher interest rates. Risky, small companies in private markets have borrowed heavily in floating-rate debt, and if interest costs rise to 10%, a significant portion of their earnings will be eaten up by interest payments. This poses a direct problem for most private equity portfolio companies. Therefore, private equity, which constitutes a large portion of many portfolios, is in trouble due to higher interest rates.
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