A simple gloomy model you could have of private equity is:

1. Once upon a time, companies were mispriced. Lots of companies were available cheaply. Their price didn’t reflect the present value of their cash flows, or at least, it didn’t reflect the present value of the cash flows they could reasonably achieve if you added some leverage and improved their management.
2. A few ambitious risk-seeking entrepreneurs noticed this systematic mispricing and set out to fix it. They raised money from friends and family and patient investors who were willing to take risk, they bought companies at low prices, levered them up, fixed their operations and resold them after a few years at higher prices.
3. It helped, in doing this business, that interest rates were declining for decades and valuation multiples were rising. If you bought a company, did nothing to it, waited five years and sold it, you’d have a profit just from valuation tailwinds.
4. The people who started this business — private equity — made great returns for their investors and became billionaires themselves.
5. This attracted many, many more people to the business. Who wouldn’t want to become a billionaire by buying and selling companies? Who wouldn’t want to invest with them?
6. So now private equity is the default career path for smart ambitious people entering the financial industry, and private equity firms are now giant alternative asset managers with hundreds of billions of dollars under management.
7. Why would companies be mispriced?

Like: There was an arbitrage, and correcting it made people rich, and now it is corrected, so correcting it can no longer make you rich. If you want to buy a good company, lever it up, improve its operations and sell it back to the public markets:

• Other private equity firms have already bought most of the good companies;
• The companies that are left have all levered themselves up and hired consultants to improve their operations, like a private equity firm would have done, so there’s no reward to you for doing that;
• Interest rates have gone up, so borrowing money is more expensive now than it was a few years ago; and
• Other private equity firms own tons of companies that they want to sell, so you have to compete with them when you try to sell your company back to the public markets, and you won’t get a premium price.

In the golden age of private equity, private equity ownership was an exception, a way to move companies from a low-value state to a high-value state. In 2025, private equity ownership is almost the norm: Huge chunks of modern business are owned by private equity funds rather than public shareholders. It would be a little weird if those private equity funds could all sustainably get much higher returns than public shareholders.
Anyway Bloomberg’s Allison McNeely, Preeti Singh and Laura Benitez report on gloomy times for private equity:

After a half-century of meteoric growth, buyout firms are facing challenges at every step of their life cycle: Attractive takeover targets are scarcer, financing costs are up and it’s harder to cash out old investments and deliver the robust returns once promised to pension managers, endowments, foundations and wealthy individuals. Even dealmakers are frustrated — waiting to collect their share of profits known as carried interest that comes when investments are successfully wrapped up. …
“Private equity has lost its way and has to go back to what this industry — that employs the brightest and best minds — does best,” Orlando Bravo, managing partner of private equity firm Thoma Bravo, said in an interview. That’s “buying and selling companies and generating great returns for its investors.” …
“Many PE firms are dead already, they just don’t know it,” said Charles Wilson, senior vice president of investment management at industry recruiter Selby Jennings. “Survival will likely hinge on how forgiving managers find their LPs to be when they hit the fundraising trail again in coming years.”
The troubles follow a long, high-flying era. For more than a decade, rock-bottom interest rates and cheap financing helped firms scoop up businesses, re-engineer their finances and then unload them at lofty valuations. But when the Federal Reserve started hiking borrowing costs in 2022, the industry got stuck — unable to exit holdings at the prices and returns they had been touting in marketing pitches and updates to clients. …
Privately, many institutional investors concede that their expectations from private equity investments are muted for the next decade compared with the previous 10 years.

Perfect time to, uh, sell private equity to retail?

Man people beginning their investment journey feel like they are entering a cave (black hole) of quite dense smokey fog, So much advice coming from all directions and often conflicting. For them Clements was, along with others, a perfect way to get one's feet wet. His advice beared repeating and was sound and sometimes a consistent drumming was necessary.

I wouldn't laugh. HOSIX earned basically it's coupon return plus a bit of capital appreciation since inception. Just a bit better total return compared to BGHIX since inception. What gives HOSIX it's high Sharpe is the low SD...but in comparing HOSIX to other funds since inception its NAV hardly declined at all even when other funds experienced significant DD. I can only attribute that to my assumption that HOSIX's assets are hard to value and probably not marked down on a daily basis. I could be wrong, of course, and that's why I'm considering the fund. Another issue is the small number of holdings. It has 129 holdings compared to 864 at JSVIX. A few defaults in HOSIX could be impactful, again think ZEOIX.

@WABC. my sense of humor is such that I am wondering if the hiatus will be longer than my days. I am old enough that my wife and I spent 3 years sailing the sea of Cortez and saving money because double digit interest rates on our savings more than covered beer, food and insurance.

Anyone adding significant new money into US equities these days?