I have always thought of private equity as a cyclical asset class. There was the famous RJR Nabisco LBO that failed, and formed the basis of the 1989 book, Barbarians At The Gate. I profitably shorted Blackstone soon after its IPO, as the end of the credit cycle appeared.
My negative view on private equity has also been reinforced by the usual dire performance of private equity assets that return to public market, either as an IPO, or as a sale to listed company. So when thinking about private equity, I really saw it as a play on the credit cycle. Get bullish when spreads are wide, such as in 2001 or 208 to 2011, and bearish when they are low.
When I first saw GLD/TLT inflect higher in 2022, I pretty much assumed the private equity and related share buyback trade was done. That is higher inflation would lead to tighter monetary policy, as well as higher spreads. As can be seen above, spreads have moved back to lows, even as GLD/TLT has surged.
Listen to this episode with a 7-day free trial
Subscribe to Capital Flows and Asset Markets to listen to this post and get 7 days of free access to the full post archives.
