Trends Watch: February 1, 2018

EisnerAmper’s Trends Watch is a weekly entry to our Alternative Investments Intelligence blog, featuring the views and insights of executives from alternative investment firms. If you’re interested in being featured, please contact Elana Margulies-Snyderman. 

This week, Elana talks to Peter Weinbach, Managing Director, Yankee Hill Capital Management.

What is your outlook for private equity?

The market has become mature and subject to cycles. Today, it looks like 2007 when credit was free-flowing, buy-in multiples were elevated and capital-in-system was plentiful. Arguably the market conditions appear close to a top: When the industry started 20 plus years ago, there was a few hundred firms; fast forward to today, there are close to 6,500 firms and over $1 trillion of uninvested capital. You have gone from a small niche market to a more mature market. The dispersion of returns between top and bottom performers has narrowed and the key driver is no longer necessarily picking a good manager but the right vintage year to invest. If you invested in 2007, the results were likely poor (regardless which firm you backed); but if put capital out in 2009 you did well (again regardless of who chose).  In short, I would be cautious given the current market conditions.

What is your outlook for the economy?

The economy looks solid and should grow at 2% plus rate. The economic cycle is at a late stage as we are nine years into a recovery and S&P is up close to 300% since the bottom. Growth is being driven by the foreign markets and synchronized worldwide growth. The U.S. tax cuts will have a short term positive impact but over next 12 to 18 months, the cycle is likely to turn.  Over all I am cautious on markets and economic outlook.  I think things are asymmetric with limited upside but a lot of potential downside risk.  There is a decent probability that something unexpected occurs and drives us lower.

What keeps you up at night?

What keeps me up at night is thinking about how I can be productive and spend my time wisely in the current environment. I always try to form a viewpoint of how things look prospectively and correctly assess the risks and opportunities.

Elana Margulies-Snyderman is an investment industry reporter and writer who develops articles, opinion pieces and original research designed to help illuminate the most challenging issues confronting fund managers and executives.

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