Private Equity; Can there be a bubble in something if it has no price?
As a believer in efficient-ish markets, I am uncomfortable calling anything a bubble.
Recognizing a bubble requires spotting an asset or asset class that is objectively overvalued before everyone else does.
Making this determination is almost always impossible in real time, even if it’s screamingly obvious in hindsight.
Sometimes, however, you get an inkling that something isn’t right — and lately I am feeling that about private markets, especially private equity, even if there are no prices that can collapse or be inflated.
In 2023, the value of North American private equity assets under management was estimated to be $3.5 trillion, more than 10 times what it was two decades earlier.
The higher-forever rate environment poses an extra challenge, as the industry thrived and grew with rates near zero. Some parts of the private asset industry will weather higher rates, but others (commercial real estate, for example) may not be able to.
Unlike public markets, when the private equity bubble deflates, it probably won’t happen all at once. But just because there is no pop doesn’t mean there was no bubble.
Allison Schrager Bloomberg 9 juli 2024
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