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Aug 24

My second year as a Private Equity Associate in Large-Cap Private Equity - A Long Thread

We talk about PE all the time, but how does it look like from the inside? Today, I will cover the following topics:
1) Where I was right last year
2) Where I was wrong last year
3) Why Private Equity is such a good model
4) Key Trends I am seeing (Retail, Returns, AI)
5) Is the grind in PE still worth it?
6) Figuring things out, what I am doing next

The beautiful thing about being anonymous is that I can be 100% honest. Be aware, this is as real as it gets!

Let’s get into it ⬇️ ⬇️ ⬇️

1) Where I was right

What I love about writing and posting content online is that I get to crystallize my thoughts. Last year, after my first year in large-cap PE, I wrote down many thoughts which I encourage you to read before diving in this new writeup (I have not repeated myself, and this post serves as a follow-on, building on what we discussed last year).

Looking back, I was at times naive, but my opinion is largely unchanged on a variety of topics, including:

i) PE is just such a good model

Last year, I wrote: “Sometimes, the private equity model seems too good to be true. Where else can you find a model where: (a) you can screw up for years and investors cannot leave you (as capital is locked up), and (b) you mark your own portfolio companies until you sell them whenever you want them?

Everyone always talks about the illiquidity premium, but I think that the positives of illiquidity are often overlooked. There is a certain comfort of looking at a 20% market pull-back knowing that (a) you are not going to charge the multiple of your portco (because private market multiples are more stable - big surprise lol), and (b) every public target just got 20% cheaper.”

Early this year, markets crashed 20%+ and this felt so true. No one was particularly scared, our marks stayed really flat (lol), and it was much easier to make the math work on many public names. While I never experienced a long recession in private markets, no one can argue that this lock-up structure is extremely advantageous and also prevents GPs from panic-selling.

ii)The hard part is getting in

From the outside, large-cap Private Equity can seem intimidating. Everyone has an MBA from HBS/GSB, went to a top undergrad and top-tier banking program, etc. etc. - the cream of the crop

My view is that large-cap PE really attracts above-average smart, insecure, and money-driven individuals.

Maybe this is a bit harsh, but I just really want to share that the average IQ is not 160. These are (mostly!) a bunch of people who generally like investing, really want to get rich, and are not willing to take a risk (there are many fantastic individuals I work with who I consider brilliant, but these are the exception, not the norm).

What should you do with this piece of information?
Firstly, you should not be intimidated by someone just because they are a Principal at a Mega-Fund, it is really just a job.

Second, you should not despair if for some reason, you don’t get one of these firms. There is a large number of variables you cannot control when the recruiting process is so selective, so just don’t sweat it, this is not the best job in the world.

Finally, if you get a job and want to spend your career there, this can be done. I often hear complaints that all these Large-Cap PE programs are two-and-out. My view is that if you are actually smart and really want to get a promotion, there is room. It is up to you to get it (and decide this earlier than later).

iii)You are not an investor

I love when people update their LinkedIn profile to “Investor at [Insert Mega-Fund]” because it is just so cringe when you look at what the job actually looks like.

If you define investing as doing models to backsolve to a 20% IRR, make twenty-page, nicely formatted decks, and help a deal get through and manage advisors, then yes, you can call yourself an investor. But if you think about investing in a more classic way, I am sorry to break it to you, but you will not be one until you are much more senior.

This creates a lot of friction at the junior level because people get frustrated that they are still Excel monkeys and no one wants to ask you what you think about the business.

In PE, the Investment Committee makes a decision, and the Partner makes a recommendation; you are just there to help him pitch the company. Just something to understand before having your dreams crushed.

2) Where I was wrong

At the same time, I realized how some of the things I said could be corrected or at least better explained. In particular, I would like to spend some time on:

i)Fake work is not that fake after all: last year, I was particularly frustrated with the large amount of work done on deals that everyone knows are never getting done. While these suck, I was particularly shortsighted in not understanding that the work is not wasted at all.

Sure, maybe doing 15 slides to tell everyone why you are killing a deal is a bit too much, but I came to appreciate the work done to understand a business (and more broadly, an industry) even if we all knew the company was not actionable. In a few months, you might have the opportunity to invest in a very similar business, and you will then be extremely grateful that you spent a few weeks understanding the space. Very often, banker auctions are extremely rushed, and having three weeks of industry work can be a massive advantage during the process.

ii)Most people in MF are good investors, they are just afraid to speak up: if you asked me last year what I thought about my Principal / Vice-President, I would have told you he/she is a mediocre investor who is incapable of independent thinking. This is because, from my perspective, this person is the Partner’s puppy who will just push the process forward without really expressing any interesting or relevant investing insights (maybe not zero, but a lot less than what you would expect from a 30+ year old investor at a Mega-Fund).

Over this year, I realized this view should be slightly modified. These people are above-average investors, but they never get to share their views because that’s not their job and they NEVER want to annoy the Partner. So, even if they disagree, there is no point in speaking up, the risk/reward is not really not there.

If you are confused why, you should understand that at Mega-Funds, a Partner can like a deal, but Investment Committee can still say “No” (unless the Partner wants to put his career on the line, but most of the times this does not happen). Therefore, why should a Principal bother to push back to show his investing acumen? This will not happen, and his job remains to tell the Associate how to tweak my model to show what the Partner wants to see.

Note: while I changed my mind and now see most of my colleagues under a positive light, I still believe that there are many very mediocre professionals that are terrible investors and just good at playing the politics game. Hard to distinguish these where there is so much room to hide and you don’t call the shots until you are a Partner.

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Aug 11

Beyond IRR: Why is everyone talking about DPI? 🧵

The dry-up of IPO and M&A markets, combined with a 'higher for longer' interest rate outlook, has led an increasing number of LPs to rank DPI as their 'most critical' performance metric in 2025 (McKinsey). However, even this inherently cash-based metric is not a panacea and has its own natural limitations.

Let’s have a closer look at DPI’s ascendance in the PE world:

1) What is DPI – the fund’s cash-on-cash reality
2) PE Liquidity crunch: the main drivers of DPI's recent prominence
3) Liquidity management tools: a double-edged sword
4) The shortcomings of IRR
5) Demand for DPI is here to stay
6) DPI and IRR: a holistic view

1) What is DPI – the fund’s cash-on-cash reality

DPI is a straightforward metric that quantifies the total capital a private equity fund has returned to its investors relative to the total capital they have contributed. It is calculated by dividing the total cash distributions to investors by the total capital paid into the fund:

DPI=Distributed Capital / Paid–in Capital

This ratio provides a clear, tangible measure of a fund's ability to return actual cash, and is also a net metric, since it is calculated after fees and expenses. For instance, a DPI ratio of 1.5x indicates that for each dollar invested, $1.50 has been distributed back to the LP.

One of the key factors that’s responsible for DPI’s recent protagonism is the fact that, unlike IRR, it does not rely on theoretical valuations or projected gains – it aims to answer the question of “How much actual money has been returned compared to what was invested?”

Furthermore, DPI also functions as a strong indicator of a GP's execution capability and operational discipline – the direct correlation between DPI increasing as exits are achieved and capital is distributed positions this metric as a clear measure of a fund manager's effectiveness to in successfully liquidating investments.

Finally, DPI avoids IRR’s oftentimes unrealistic assumption that the funds distributed to the LP can be reinvested at the same rate of return.

DPI will largely change as the funds progress in its J-curve. Intuitively, a DPI below 1.0x is expected during the fund’s investing phase, up to the closing of the first exists of the fund, and to increase past 1.0x as the fund successfully liquidate its investments – the key aspect here being the timely exit of those positions. If funds are facing problems to exit their portfolio companies at the desired conditions, they may extend the holding period, pushing the payday for LPs (e.g. the distribution) further in time and maintaining DPI at lower levels.

2) PE Liquidity crunch: the main drivers of DPI's recent prominence

DPI’s rising prominence is a direct response to gradual, yet fundamental, shifts in the private equity landscape, primarily driven by a liquidity crunch caused by a constrained exit environment that started to take hold in 2022.

The central banks’ response to the then surging inflation (i.e., shut down of quantitative easing and aggressive rise of interest rates) raised the cost of capital, dampened M&A activity, and closed the IPO window in practice.

Exit opportunities were further restrained by a regulatory environment (antitrust, foreign investments and later tariff pressure) perceived as hostile, and geopolitical uncertainty further fueled this trend.

Finally, investments made during the low-interest-rate era were often priced aggressively, requiring elevated exit valuations to deliver the return thresholds projected by GPs and expected by LPs (thresholds that have become increasingly difficult to meet in the current market environment). All this culminated in a “two-and-a-half-year exit slowdown” that hasn’t been offset by the modest uptick in deal activity recorded more recently (Bain&Co).

As a result, GPs face growing difficulty exiting investments in a timely manner. According to Bain&Co, global buyout holding period peaked in 2023. This trend has left PE funds holding substantial unrealized capital that must eventually be distributed, with LPs increasingly pressing for returns.

LPs, especially large institutional investors like pension funds or endowments, face their own liabilities and inherent needs for stable liquidity. When distributions from PE funds are delayed, it becomes challenging for them to meet capital calls for new commitments or service their stakeholders. This liquidity crunch prompts LPs to (a) actively seek solutions to manage their current liquidity, and (b) evaluate future fund managers through a lens that overweights liquidity over return – effectively prioritizing DPI over IRR

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Jul 24

On July 11, Walgreens Boots Alliance shareholders approved a $23.7bn take-private by Sycamore Partners.

But you probably don’t even know the biggest winner in this saga so far.

It’s Warburg Pincus - who quietly walked away nearly three years earlier after one of the most successful exits in its healthcare portfolio (10x+ MOIC).

This is the story of how Warburg built and exited Summit Health, what made the deal work, and why Walgreens is still trying to make sense of it:
1) Betting on CityMD
2) Tuck-Ins and the Summit Merger
3) The Strategic Sale Process
4) VillageMD and Summit Health
5) Reality Hits and the Sycamore LBO

1) Betting on CityMD

In 2017, Warburg Pincus acquired a majority stake in CityMD, a high-growth urgent care provider in the New York metro area. At the time, the company had 68 locations across New York, New Jersey, and Washington, was generating roughly $240mm in revenue, and had under $40mm in EBITDA. The deal valued CityMD at $596mm, implying a 2.48x EV/revenue multiple and ~15x EV/EBITDA.

Though Warburg wasn’t actively targeting urgent care, it was drawn to CityMD’s aftercare referral model and dense urban footprint. TJ Carella, head of healthcare at Warburg, later said the company was impressed with how CityMD integrated episodic care into the broader healthcare system. The investment is part of a broader trend occurring in PE; by 2024, nearly 17% of urgent care clinics were PE-backed according to the Journal of Urgent Care Medicine.

Warburg had already invested more than $10bn in healthcare by that time, in companies like Alignment Healthcare, Coventry Health Care, and Humana. CityMD was another bet - but one that would evolve significantly.

2) Tuck-Ins and the Summit Merger

Over the next five years, Warburg transformed CityMD into a much broader platform, investing over $500mm. The firm completed more than ten acquisitions, bringing in urgent care chains, specialty physician practices, and outpatient facilities.

These included FirstMed Urgent Care, STAT Urgent Care, Franklin Immediate, Urgent Care Now, Active Orthopedics, Gotham Gastroenterology, Westmed Medical Group, New Jersey Urology, Long Island Medical Associates, and North Shore Cardiac Imaging.

The most transformative move came in August 2019 when CityMD merged with Summit Medical Group, a large multi-specialty practice. The deal occurred during the pandemic, adding operational complexity.

“Integrating those companies in the middle of COVID was a challenge as we were taking two different cultures,” Carella told Buyouts Insider.

The result was a combined organization with 1,400 providers, more than 6,400 employees, and nearly 200 locations. The strategy reflected a broader shift in healthcare toward care integration. UnitedHealth’s Optum had already acquired MedExpress and added surgical centers and physician groups.

CVS, after acquiring Aetna, announced plans to roll out care centers across thousands of stores. Warburg’s build-out of CityMD-Summit fit the same mold - only faster.
The goal wasn’t just to scale urgent care; it was to create a fully integrated outpatient ecosystem spanning primary, urgent, and specialty care.

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Jul 5

TRIPLE DIP DEEP DIVE

A structure that is just arising in the restructuring / credit world is the triple-dip.

At the most basic level, the point of a triple-dip is simply to take a double dip, and determine if there is another claim that can allow a creditors claim to reach three times the book value of debt.

The case of Spirit Airlines, which we dive in our deep dive, is the first iteration of this mechanic and evidence that triple-dips can be created if the correct verbiage exists in credit documents.

For Spirit, a third dip was created via Termination Damages, as the bond indenture included a clause specifying the cost of damages owed to bondholders if the brand IP licensing agreement is terminated.

The other two dips came from the sources above: the ParentCo guarantee and an intercompany loan.

That does pose the question: what are some other ways a triple-dip could be created.

Although it is always going to depend on the credit doc, corporate structure, and what creditors are allowed to do, below are some possible ways that I have thought a triple-dip could be created:

1) Option 1: Subsidiary Structuring
2) Option 2: Intercompany Derivative/Capital Structure Instruments Structuring
3) Option 3: Contingent Convertible Capital Securities

A (very complex) Thread 🧵---->

1) Option 1: Subsidiary Structuring

This is the most natural extension of a double dip

As a reminder, in a double-dip, we gain two claims from an intercompany loan and a guarantee.

Although it may seem simple to create a new subsidiary and provide another intercompany loan, for example, to get a third claim, this would not actually provide a triple-dip as this new intercompany loan still requires capital from a creditor group.

Thus, to create a triple-dip ‘naturally’, we need to maneuver the existing capital around the corporate structure to gain an additional guarantee secured by the same pool of assets.

Reference figure below for an example to demonstrate this idea.

While this diagram may look complicated, it is simply an extension of the double-dip seen.

In this example, we have $400mm of Secured Notes being issued to SubCo Y. As in a standard double-dip, we have our first claim coming from an intercompany loan to the ParentCo.

Our second dip comes from the guarantee from the restricted subsidiary on the $400mm debt issued by the triple-dip creditors. Now, to create the third dip, we need to gain an additional claim (outside of the credit box).

To do so, one method could be to transfer the debt held at ParentCo to SubCo X via an intercompany loan.

The debt held at SubCo X can then be guaranteed again by the Restricted Sub, creating a third claim. In order to move assets in and out of the credit box like the example above, there needs to be a lot of credit doc flexibility.

2) Option 2: Intercompany Derivative/Capital Structure Instruments Structuring

A company could use swaps, options, and other derivative instruments between subsidiaries to create a third claim.

Like the intercompany loan, a derivative instrument represents a contract between two parties, and if structured appropriately, it could represent additional recoveries for the triple-dip lenders.

Figure #4 below depicts how this structure could arise.

As it was in Figure #3, there is a first claim from the $400mm intercompany loan, and a second claim from the $400mm restricted company guarantee.

However, the third claim is created via an interest swap contract entered into between SubCo X and ParentCo (using the $400mm upstreamed from SubCo Y).

To briefly explain how swap contracts work, it is an agreement between two parties to exchange their interest payments for one another over a set period of time. Let’s say that we have a mortgage of $1,000,000, with a 10% fixed interest rate. If we believe that interest rates are going to be lower than this rate over the duration of a swap contract, an individual can engage in a swap contract with a bank.

To do so, they would swap their 10% fixed interest rate for a rate that the bank provides, say SOFR + 2%. If the contract lasted 5 years, each year the bank would have to pay the 10% rate and the individual would only have to pay the SOFR + 2%.

In our example swap contract, we can assume that it has a notional value of $400mm, where SubCo2 pays a fixed rate (i.e 5%), and ParentCo pays a floating rate (i.e SOFR+3%).

If, at the time of the filing, the present value of the swap contract is positive to the benefit of SubCo X, it becomes an additional claim. Thus, if that swap contract reached a present value of $400mm, a third claim could be created.

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Jul 1

Life insurance is reshaping credit markets and its impact on restructuring will be game-changing.

Remember when the most dramatic part of a restructuring was a fight over Debtor-In-Possession
(DIP) pricing or a heated meeting about covenants? Well, today, the real drama happens inside the
balance sheets of Megafunds.

Here’s what you need to know about how insurance-backed capital is becoming Megafunds’ quiet force steering distressed deals and how Apollo, KKR, and Brookfield specifically are turning life insurance into a secret weapon
1) Insurance 101
2) Why you should care
3) Apollo x Athene
4) KKR x Global Atlantic
5) Brookfield x American National
6) The Forced-Sale Trigger
7) Bottom Line

Insurance 101
Life insurers aren’t piling into credit because they’ve suddenly discovered their inner hedge-fund
manager. They’re doing it because they’ve promised policyholders a fixed annuity check every
month until 2055.

To keep their promise, they need medium-yield assets that can securely hum along for decades. Enter distressed loans, structured credit, and even DIP financings

In short, life insurance liabilities = very long-dated bonds.

When a client buys an annuity, the insurer
is on the hook for payments 10-50 years out.

The present value of those obligations is discounted
using interest-rate curves, and if rates fall, the liability’s value jumps, and regulators demand more
capital padding.

Asset-liability matching is the name of the game here. Life insurance companies are less worried about beating the S&P and more worried about simply making sure assets and liabilities stay in sync.

If an insurer can achieve a predictable 6-8% over 30 years instead of pulling a Structured Alpha 2.0
their CIO will keep their job.

Why You Should Care (Implications on DD and RX)

Here are some ways insurance capital disrupts the script on everyday DD and RX.

A Change in Negotiation Leverage

- Remember that these life insurers are LONG term, so any marginal price breaks that make for a strong IRR over 5 years barely show up for an insurer that plans to sit on the asset for 40 years (basically, since insurers are aiming for decades of coupon flow instead of a quick flip, they’re willing to pay closer to par for discounted debt to outbid other funds.)

A Different DIP Pricing Strategy
- Although insurers may require stricter covenants to decrease risk on DIP financings, their patient investment approach means they can afford to offer lower coupon rates than most other investors. If insurers accept 6% DIP spreads, your distressed hedge fund expecting 12% is out of luck

Secondary-Market Valuation Problems
- Because insurers often buy debt to hold for long periods, the market could go quiet, meaning with no recent quotes, it becomes harder to model what the debt is worth.

Below are the poster children for this “insurance eats credit” trend. Each combines a global alternative asset manager with an insurer that produces gigantic but predictable cash inflows.

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Jun 26

Private Wealth is the next big source of capital in private markets.

This is Kipp deVeer. He is the Co-President of Ares, and in his most recent interview with Capital Allocators, he discusses Ares’ focus on the source of capital of the future: private wealth.

1) Private Wealth: Overview
2) Ares Approach
3) Investment Implications
4) Geographic Expansion
5) Ares’ Future

A (Long) Thread 🧵

1) Private Wealth: Overview

Kipp notes that the mass affluent of high-net-worth individuals (HNWI) have a growing desire for more sophisticated portfolios beyond the traditional 60/40 allocation, following negative returns in the early 2020s. With the growing prevalence of alternatives, private wealth managers view the sector as a substitute.

A decade ago, the channel was mostly limited to non-traded REITs, with Blackstone holding 60% of the market share. Since then, product innovation has widened offerings, from secondaries funds to private credit strategies. ‘40-Act wrappers have underpinned this shift and are the vehicles that allow HNWIs to enter the less-liquid markets. Two key examples of ‘40 Act wrappers within the private credit space include Business Development Companies (BDCs) and Interval Funds:

1. Business Development Company - Listed or non-traded, a BDC pools private credit assets, and like REITs, passes most of the investment income through dividends [2]. BDCs dominate debt-focused ‘40 Act funds, holding roughly $340bn of the $400bn segment [3].

2. Interval Funds - These funds offer “semi-liquidity,” allowing redemptions only at scheduled monthly or quarterly intervals. This illiquidity allows managers to own harder-to-trade assets, such as alternatives or private credit, without daily pressure [4]. Interval Funds now account for about $50bn of the debt-focused ‘40 Act funds.

Market share is heavily concentrated, with just four or five mega-funds, such as Ares, Blue Owl, and Blackstone, controlling over a third of the private wealth channel. The expansion of private wealth extends beyond more stable asset classes like private equity or credit, but also to VC. Benchmark’s Bill Gurley remarked in a recent podcast that Coatue is also exploring an interval fund, allowing HNWIs to delve into the space.

2) Ares Approach
Ares began to enter the private wealth market about 6 years ago with its acquisition of Black Creek Group, a 75-person real estate platform led by former Morgan Stanley banker Raj Dhanda [5]. Although hesitant initially, with a push from Raj, the firm realized that they needed to “race to the finish line.”

Ares began its scaling effort by sending senior partners—not just junior salespeople—to major wirehouses such as Morgan Stanley and Merrill Lynch, creating deep-rooted relationships that now anchor its wealth-channel strategy.

Kipp argues that Blackstone’s early dominance created an opening for Ares, as many advisors and wirehouses sought strong private-market products without concentrating client assets in a single manager. Instead of overwhelming financial advisors with a maze of products, Ares keeps its private-wealth portfolios curated to a total of six or seven areas that currently span credit, real estate, private equity, and infrastructure. The firm organizes these portfolios across three core themes:

1. Durable Income - Ares has built its brand on private credit, pitching it to advisors as steadier and less volatile than public credit while delivering premium returns. This approach has resonated with the private wealth community: the firm’s retail credit funds are both its largest and fastest growing, as investors “set it and forget it,” as Kipp described.

2. Diversified Equity - Kipp observes that wealth-focused firms are tackling private equity through both traditional primary-oriented funds and secondaries, but Ares seems to have joined the latter. Raj Dhanda argues that “over time, secondaries will be the preferred method of investment” because they deliver broad diversification without giving up returns [6]. This thesis is reflected in Ares Private Markets Fund’s (APMF) 96% allocation to secondary investments.

3. Tax-Advantaged Real Assets - Ares covers tax-efficient real assets through traditional REITs and has been expanding its presence in infrastructure. The recent purchase of GCP International underscores this focus, expanding Ares’ exposure to digital infrastructure across the globe.

The model is working and scaling quickly. Approximately $40bn of Ares, roughly $500bn AUM, already originates in the wealth channel. While most similar firms forecast as much as 40% of future fundraising to come from private wealth, Kipp expects Ares to raise closer to 20% of 2025 capital from retail channels, still a significant chunk.

By keeping the lineup simple, Ares aims to convince financial advisors that every dollar placed in an Ares fund carries the same downside control and information edge that its institutional LPs have relied on for decades.

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