IS PRIVATE EQUITY COOKED? THE LIQUIDITY BOTTLENECK.

Private equity is facing its own existential threat. Hugh Mcarthur, Head of Bain's PE went on Ted Seides Podcast to sound the alarm.

I came for the VC industry before. DID YOU THINK PE WOULD BE SPARED? Nah. SHALL WE BEGIN? Bain PE released their yearly report on PE, and it was filled with some particularly damning statics.

One of the most important metrics for PE is distributions to LPs as a % of NAV.

This tells you how much capital has been returned relative to what's still left in the fund.

FOUNDERS: THEY DON'T WANT YOU TO KNOW YOU CAN RENEGOTIATE YOUR CAP STACK

I keep seeing VC zombie SAAS cos in my deal flow.

The same story every time: M&A prices have dropped and if the company sells the founder gets ZEROOO.

You know you can just ...renegotiate right? 🧵 What the VCs don't want you to know is that you can literally renegotiate all of it. Anything is negotiable. Look at f***ing trump: dude is renegotiating decades old trade agreements with LITERAL COUNTRIES.

How would we do this in theory?

THE MOST ATTRACTIVE PE STRATEGY ATM: SOFTWARE SPECIAL SITUATIONS

Private equity, as an industry, is kind of f***ed. Many strategies, to me, have an extremely nebulous outlook on IRR over next 4 years...except for one. I'm biased, as I will be launching a LARGE investment vehicle for this strategy, but imma teach ya'll about my favorite pocket of PE investing atm: Software Special Sits. 'Special Situations'...what the f*** does that mean? Well, it is really just majority investing in weird situations. Traditional Software PE was 'Buy a growing software company at premium valuation, grow it more, sell to a public OR IPO'. Sadly, this strategy is FLOPPING rn.

The Venture Capital Apocalypse is coming...it might even be here already.

The venture capital asset class is facing a watershed moment. Orphaned/Zombie VC software companies are everywhere.

I'm a 'DATA DRIVEN' guy so I'm going to show you 6 graphs that illustrate how dire the situation is. The problems really start in 2020/2021. Massive amounts of dollars poured into every stage of Venture Capital. The number of unicorns exploded. This will come in later as a major issue.

There were simply too many dollars facing the same number of generational companies.

HOW TO BREAK INTO PRIVATE EQUITY: Many of you have asked me how to break into this industry. I thought I would write a thread on the advice I give most often. This advice is NOT for someone with 3 years investment banking experience. Your chances are low, but they aren't 0. 🧵 A few disclaimers: 1) You shouldn't get into this gig unless you genuinely have intense passion for private investing. I mean really intense. It is a difficult profession. If you don't LOVE this stuff, you will hate it. 2) Your odds of success are low.

LBO / PRIVATE EQUITY LEGENDS IS BACK. Algorithm changes be damned. I pulled 300,000 M&A deals. I profile the top private equity deals of all time. These guys made a billion dollars on CATHETERS? This is the story of GTCR's acquisition of RESONETICS 🧵🧵🧵 The year is 2014. Regatta Medical, under GTCR, acquired Resonetics from Sverica Capital Management. Sverica had previously bought Resonetics in 2014 from Corporate Fuel Partners. The deal is rumored to have been done for $200mm. What do they do?

$900,000 SALARIES FOR AI 'product managers'? Imagine what the top AI engineers are making. We are either at the top, or at the beginning of something wild. Considering GPT4 dropped a few months ago, I'm inclined to think this is the beginning. 🧵🧵🧵 I saw a few threads from people outlining existing generative AI use cases. They think it's overplayed. As someone who considers himself at the forefront, we aren't hyping it enough. LLMs open us up to a new 'logical core' for many use cases, whether it is robotics or automation

PRIVATE EQUITY LEGENDS: Goldman Sachs/Bain made $2 billion in profit in 1 year on KOREAN SKINCARE? i'm a data scientist in private equity. I pulled 300k M&A transactions. I profile the highest IRR M&A deals in history. Skincare products? Korea? Goldman Sachs? 🧵🧵🧵 The year is 2016. Korean culture is permeating the world; and their skin care products are world renowned. Apparently, Carver is growing its skincare products 200% year over year. Goldman Sachs and Bain spot an opportunity and buy 60% of the company for $500mm.

STUDENT LOAN PAYMENT CRISIS: I'm a private equity data scientist. I have access to some cool real time credit card data. Student loan payments are coming back and will impact industries/companies. Which ones? Let's dive into some credit card data and find out 🧵🧵🧵 First: what's the present state?In April of 2020, the number of student loan payers in the data dropped by 40%(!!!). By june of 2023, 70% of those with student loans weren't making payments. The average payment pre april 2020 was $300/mo, so we can assume consumers will pay that.

WATCH A PRIVATE EQUITY DATA SCIENTIST OPTIMIZE A PRIVATE EQUITY PORTFOLIO COMPANY. I'm a data scientist at PE fund. I'm going to break down a recent acquisition and how I'd approach it with data sci/analytics. First up? A classic: Fire/Safety Integrations company. 🧵🧵🧵 The company is K&G Integrations (its real). The company offers services such as fire alarms, video surveillance, access control, intrusion detection and wireless networking, thereby offering its customers with complete protection of their possessions. Let's break down analytics.

LEVERAGED BUY OUT LEGENDS #8! I'm a data scientist in PE. I pull the greatest private equity/M&A deals and profile them. This one might be my personal favorite. THOMA BRAVO MADE 9B IN 1 YEAR. Mortgages? The fed? SAAS? Tailwinds? Perfect Timing? What a freaking story. Read on 🧵 This story has it all, and previous readers know that some of the largest returns in PE have followed a formula (that may not exist anymore): take a public company with dwindling software assets private. Improve it with best in class ops. flip it. This story is no exception.

CONSUMER SPENDING ALERT: my pe fund closely monitors the state of the american consumer. Today, you can watch a data scientist in PE break down some interesting alternative data that shows that all might not be well with the american consumer. 🧵🧵🧵 First things first, we have corporate bankruptcies on the rise. Weekly bankruptcy data is on the rise. Bloomberg reports that corporate bankruptcies are approaching 2020 / 2008 levels. NOT GREAT

LBO LEGENDS #6: Your favorite data scientist pulled 300k LBO deals. I profile them. Thoma Bravo had to make an appearance. TB's acquisition of Kofax is the stuff of legends. They bought it for 1.5b in 2017. Sold it for a rumored 3b+ in 2022. lets dig into it @OrlandoBravoTB🧵 If you all aren't sensing a theme here, there is (maybe was) massive IRR in carving out legacy techcos from large techcos and improving them. This deal is no exception. In 2017, Thoma Bravo senses a theme:

Robotic Process Automation is going to take off. What exactly is RPA?

Want to see how a data scientist at a private equity fund breaks down a business and helps a portco change their pricing? I'm going to keep things hypothetical but this is closely related to a real story. Watch how you can use analytics to improve your business 🧵🧵🧵 Portco XYZ is a service provider. Each service has a rate associated with it, an amount of money exchanged for the service, and an amount of time associated with the service. Leadership at the fund has a weird feeling the portco could be doing better.

PREDICTION/HOT TAKE: every PE fund will have a 'Chief Data Officer' or 'Chief AI Officer' in the next 5 years. The ROI on these roles SHOULD be large. As the head of ai at a large pe fund, I will explain my reasoning 🧵🧵🧵 AI has already permanently changed the way a variety of my portcos function. Each week AI seems to be getting more and more advanced. Some of these applications have very high ROI, and the CAIO will have the ability to go port co by portco and identify low effort high roi apps.

SAM ZELLS INVESTMENT THEMES: Sam's death hit me weirdly hard. Idk why. Followers told me I should pull his last 30 investments and look for themes/thesis. Watch a PE data scientist break down his firm's 6 investment themes (other than real estate). RIP to a GOAT. 🧵 I pulled the last 30 LBO/PE deals Sam did. There's actually some obvious themes here (other than his real estate plays). Sam's funds seem to have invested across: Logistics, Clean Energy, Health Care Infra, Energy and Waste management. Brilliant themes abound. Keep reading.

Sam Zell was a legend. I thought about doing a quick profile on the last 50 deals his fund has done and any themes. I'm not sure if this would be considered content baiting as I'm new to twitter. If I should do it, lmk alright i'm doing it. stay tuned and retweet for one of the goats!

@StevenACohen2 has turned bullish! The famed Hedge Funder was quoted as saying he's officially long term bullish on the market thanks to increased efficiency due to ai. Does a head of AI in finance agree? 🧵🧵🧵🧵 ChatGPt has created a generational opportunity. people on this platform think we are over hyping it, but I vehemently disagree. I have gotten chatgpt to do things I didn't think would be possible for 10 years. If you aren't bullish, you simply haven't pushed it hard it enough.

CONSUMER SPENDING FREAK SHOW: Most of the people who follow me are in PE, so I'm going to touch on something that is getting lots of attention and telling two different stories: CONSUMER SPENDING. Interesting data below 🧵🧵🧵 Bloomberg published this head line : "US Retail Sales Increase in Sign of Steady Consumer Spending" On its surface, not so bad. Value of purchases rose 0.4% in first advance since January. However, this data doesn't tell the whole story AT ALL.

Which private equity firms are performing the best? Tricky data to track down, but a follower suggested taking a look at public pension fund filings. I scraped a few sites; Keep reading to find out which PE funds are killing it and what they're buying 🧵🧵🧵🧵 We start with CALPERS! CALPERS is obviously a massive whale in the institutional space and have allocated funds to 310 private equity funds. According to the data, they've allocated 90 billion (!!!) to PE. Talk about a whale. Anyway, they document the IRR on all their funds.

COOL PRIVATE EQUITY DATA ALERT: I pulled all the lbo data in last 8 years. The data set? 95,000 LBOs from @PitchBook. Fascinating graphs in this thread! First? Let's look at average public deal size for lbos: 🧵🧵🧵🧵🧵 First things first: average lbo amount over time. We have all hypothesized that there has been a natural inflation in PE prices over time...data seems to support that. We already saw prices start to come down in 2022! I've posted about this before. 2023 data isn't in yet.