The Age of Private Equity and Credit

Market Migration Data

• The number of public U.S. companies has declined by 45% over the last 20 years.
• The number of companies owned by private equity (PE) firms has increased at an inverse rate, described by panelists as an "invasive species."
• IPO transaction volume has dropped 70% from 1990s averages, while transaction sizes have increased to the hundreds of billions of dollars.
• Public companies are staying private longer and focusing on large, liquid assets, while complex or distressed transactions are migrating to private capital.
• Since 2009, $5.7 trillion has moved into private capital assets under management (AUM).
• Private credit raised $110 billion in the single year prior to the panel.
• Commercial banks are being disintermediated in the mid-market financial sponsor loan space due to the rise of private capital and institutional direct lending.

Investor Allocation Logic

• Institutional return targets (6–8%) are difficult to achieve with 2.5% ten-year rates and tightened investment-grade spreads (approx. 150 bps), driving demand for alternatives.
• Private credit offers 8–12% unlevered returns with greater downside protection compared to private equity's 11–12% long-term average.
• Top-quartile managers continue to deliver returns above 20%, while median returns in private equity remain in the 11–12% range.
• Investors are increasingly seeking integrated relationships with General Partners (GPs) who manage both private equity and private debt.

Strategic Shifts and Firm Expansions

• Oak Hill Advisors: Manages $34 billion; expanding direct financing to larger-cap transactions and offering various credit strategies (distressed, CLOs, high-yield).
• Strategic Value Partners: $8 billion AUM; shifted 10 years ago to in-house operating teams to add value to distressed assets rather than just flipping debt.
  • Currently controls 10 businesses with approximately 15,000 employees.
  • Sources deals directly from commercial banks, maintaining larger trading teams than major Wall Street firms.
• LibraMax Capital: $7 billion AUM; acquired a CLO manager to gain origination capabilities and data insights for timing market turns.
  • Targets the gap left by bank regulations, providing warehouse funding and direct lending with tighter triggers than public markets.
  • Structured private credit with 70% duration at one year and 20% at two years to manage liquidity risks in a late-cycle environment.
• Eurazeo: Listed PE firm with $20 billion AUM (2/3 in PE); utilizes permanent capital to hold investments longer (5.5–6 year average) than traditional funds.
  • 10-year commitment to ESG, resulting in inclusion in five global ESG indices.
  • Applies the same "buy and build" operational strategy to its own corporate structure as it does to portfolio companies.
• BC Partners: $27 billion AUM; expanded into private debt (2 years) and real estate (1 year) to leverage synergies with PE.
  • Manages credit and PE from a sector-based integrated structure to better manage capital structures and liability.
  • New York PE team partners represent high diversity (French, British, Asian American, Iranian American, Italian, Bangladeshi American, Indian American).

Market Cycle and Risk Outlook

• The current environment is identified as "late cycle" with high valuation levels, though panelists disagree on the imminence of a downturn.
• Glenn August: Notes this is the third time in 40 years private multiples exceed public multiples; advises defensive portfolio management as returns compress with competition.
• Victor Kozla: Warns that future crises may be liquidity-driven rather than recession-driven, citing a 7x size increase in the high-yield market paired with shrinking trading capital.
  • Identifies liquidity mismatches in ETFs and mutual funds as a primary source of dislocation, citing examples from 2011, 2015, and 2018.
• Raymond Svoiter: Dismisses the fear of a 2008-style collapse, arguing that private capital has brought operational competence and ESG discipline to portfolio companies.
• Virginie Morgon: Foresees a diverse ecosystem where private debt acts as a strategic partner offering flexibility that public banks cannot, rather than just a financing instrument.
• Greg Lipman: Views private credit duration as shorter (1–2 years) than public credit, providing better liquidity control despite the illiquidity of the asset class.

ESG and Diversity Initiatives

• Strategic Value Partners: Team is 100% gender-balanced in the U.S. office; Europe aims for higher representation.
• LibraMax: Treats ESG as a risk-adjusted return driver; avoids "sin businesses" while maintaining broad investment flexibility.
• Eurazeo: Operates a dedicated ESG team focused on P&L benefits (cost savings, revenue growth) for portfolio companies.
• BC Partners: Adheres to the UN PRI; emphasizes that diversity in origin and background enhances investment perspective, particularly in the New York office.