Headlines 📰

• Vista rotates from Private Credit to BSL to save $200M. The private credit premium ebbs and flows.

• The condo market is floundering. High supply, in rising cost states, is starting to meet flagging demand.

• Figma is largest VC-backed American Tech IPO in years. It’s not even a ‘down-round’ IPO.

• Banks enter a new earnings regime. Lending is uninspiring as a core business, but trading and deal-making have lifted all boats.

• Trump’s tax law sweetens economics of secondary deals in VC. QSBS now brings even more capital gains under the tax-free umbrella, even sooner than before.

Private Market Review is a free newsletter for the smartest GPs, LPs and Allocators to keep tabs on the growing universe of alts, and the rotation to private capital markets.

AI Capex is the Cycle Now

AI Capex, as measured by Information Processing+Software, contributed more to GDP growth than consumer spending

Why it matters:

• AI Capex is not only the biggest story, but it’s become the most important driver of net-new economic growth;

• The flipside is that AI stands alone as a “pro-cyclical” economic driver, as housing (and other durable goods) investment fades into contraction mode;

• Bubble-or-not, the extent to which everything is riding on AI cannot be overstated.

A normalized US economy has been looking like a low-growth, healthcare-driven economy for some time. Residential real estate provided some cyclical tailwinds, but builders have dialed things back as supply builds, and prices fall. At this point, AI-Capex is the only game in-town, but if hyperscaler revenues keep growing, then it’s not slowing anytime soon.

Young, unprofitable companies get right-sized

The share of public equity comprised of unprofitable, low-growth companies is ~1%

Why it matters:

• the stock market is being held-up primarily by earnings growth, and not speculation on loss-making companies;

• that said, there is still plenty of liquidity even for loss-making companies—not quite as much as during the Dotcom boom, or peak-ZIRP, but more than during the post-GFC period

• the overwhelming majority of unprofitable, slow-growth companies, however, live in the private markets

Take comfort that current stock market highs are nothing like the previous “tech bubbles.” There’s about as much speculation in buzzy, loss-making companies as there was from 2016-2020, which is to say, not all that much. On the other hand, private managers can’t blame a “closed IPO window” for the lack of exits because, again, public markets are about as closed as they were from 2016-2020, which is to say, not all that much.

Secondary liquidity (nearly) reaches a series high

Secondaries comprise ~4.2% of VC exit value, eclipsed only by the 4.4% of 2018

Why it matters:

• secondaries are rapidly becoming an important off-ramp for VC exits

• the share is expected to grow, both as fundraising for the strategy grows to unprecedented levels, and secondary exits lose some of their stigma

• it’s a welcome sign for impatient LPs, and a small part of the “private-for-longer” phenomenon

Secondaries used to be a niche cottage industry that occasionally happened for strategic reasons, but otherwise no one talked about. But as companies stay private for longer (sometimes because they can, and other times because they have no choice), secondaries will become an increasingly important part of the liquidity infrastructure for private markets. Private markets are growing up, partly by becoming more public-like, and that’s good.

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Investment Idea 💡

AI-Driven Shift in Cloud. Tomasz Tunguz makes a napkin-math argument that AWS $AMZN ( ▲ 0.02% ) is rapidly losing share to Microsoft $MSFT ( ▼ 0.44% ) and Google $GOOGL ( ▲ 0.47% ) because it lacks a competitive AI offering to drive growth.

Strategy, Trends & Analysis 📈

• Office not dead, just dividing. The suburban-metro divergence.

• How AI could reshape asset management (McKinsey). Lots of charts, for a historically low-tech industry.

• The disappearing sub-$5M seed round. Massive, multi-strat VCs are bidding up AI seed rounds, as the VC industry herds around a single thesis. If you think of seed rounds as expensive call options, it makes sense for the larger funds to throw their weight around. On the other hand, it makes life hard for an undifferentiated subscale fund.

• Middle-market PE rediscovers an old-playbook. First-check-in to already profitable companies in need of some growth capital and expertise. Imagine that.

• Lower rates will tighten housing inventory. Lower-rates will allow buyers to meet the still un-realistic price expectations of sellers, leading to a net-decline in homes for sale. It will have no effect on ‘mortgage lock-in’ because there is no ‘mortgage lock-in’ and never has been.

Charts, Data & Decks📊

• Stablecoin Outlook. 

• Bain on Consumers post-tariffs

• McKinsey Tech Trends

• Single Family Office Survey & Trends

• Moonfare’s 1H PE market report