00:00And Sri, just focusing on private equity for a moment, because there was this Blackstone story first reported by the
00:05FT, but we now have it too, that they're going to sell some of their GP stakes that they have,
00:09$2 billion specifically.
00:11I wonder if some of this is just, there's no liquidity in this industry, and these private equity funds have
00:17really been struggling to get distribution.
00:19It's a symptom of the problem we've been talking about for a while now.
00:22It is just very hard for private equity firms to be able to offload their investments, to be able to
00:26return money to their investors.
00:28So they have to find creative ways to raise money so that the original investors are paid out.
00:34And that demand exists because the private equity cycle relies on these companies every few years, coming back to the
00:40market, trying to raise more funds and more money from investors.
00:43But at some point, investors have to hit pause and say, before I give you more money, can I have
00:48the earlier capital return, please?
00:50And that's why you have everything from the surge in secondary sales to continuation vehicles, and now the CFOs that
00:59we're talking about, these collateralized fund obligations.
01:02We are trying to take these stakes across different funds, bundle them up into bonds, and find a new market
01:09of investors, potentially draw people like insurers into the mix so that you could give them the safer slice.
01:14And you will find a lot of investors also reaching for yield, and they will go for the riskier portion.
01:20But if you had to zoom out, it is exactly what you're talking about.
01:24It's just another way, another mechanism for them to see if they can find and exit from some of these
01:30positions, satisfy their investors.
01:32How well are these solutions working?
01:34Because it strikes me that, in terms of secondaries, for example, there's not just a lot of supply.
01:41There's a ton of demand.
01:42It seems to be something investors really want.
01:45Look, it works to the extent that at least there are one set of investors who get paid back and
01:49another new set of investors who take on the risk.
01:52But ultimately, for this market to function properly, for this sector to function properly, and for the general health of
01:58private markets,
01:58whether you're talking about private equity or private credit, you can't rely on this financial engineering to go on forever.
02:05You really need to go back to the basics of hoping that when you acquire a company, you grow its
02:11earnings base, you cut back costs, and make it more appealing for the next buyer.
02:15When we get back to that phase, you will see a lot more of these executives happy.
02:20I don't think that will be the mood in Germany when you're there with them, Danny, but that's where they
02:24would like to be.
02:25Say, last year when I was at this conference, there was this optimism that finally the logjam would be starting
02:30to break,
02:31that more sellers and buyers could come to some sort of agreement.
02:34I just wonder how much the SaaSpocalypse set us back, because this is an industry that's quite overexposed to software.
02:40Entire funds exist that only do software.
02:43If that really isn't, also just compounds this issue that we're talking about.
02:47Of course it does.
02:48We have to go back to the Global Credit Forum last week.
02:51It was you on stage with Scott Goodwin of Diameter, and he talked about the greatest default risk is in
02:55SaaS.
02:56That is the place that everyone's looking at, because the potential for disruption, or at least it has become much
03:02harder for companies to be able to value the stakes in these companies,
03:07or value these companies in this sector, because it's still not clear how big of an impact AI will have
03:14on this sector.
03:15It is certainly having a impact, whether that would be transformational or whether that will send them into a debt
03:21spiral.
03:21That might be overdone.
03:22That's not clear.
03:23But if you're trying to buy these companies in the midst of everything else going on and all the inflationary
03:29pressure, it just becomes hard.
03:31And that's why we saw the numbers that we saw from Bain Capital out today,
03:33which says that the value of tech deals from tech sector sales from private equity companies was down to $20
03:40billion in the first quarter.
03:42That's a roughly 70% decline.
03:43When you talk about the change in marks in the software sector between Q4 and Q1, that's down 8%.
03:50For the rest of the sectors in the United States, on average, they were up 0.8%.
03:55So you can clearly see the outlier in the space.
03:59How is the mood going to be at super return?
04:02Like, is Danny going to get to go to the hottest parties?
04:05I'm sure they're still happening.
04:07As you said, there's a lot of money that needs to be put to work.
04:09Or is it going to be gloomy and doomy?
04:13For Danny's sake, let's hope that for her to get rid of her cold right now, that she does not
04:17go to all the hottest parties.
04:18The gin helps when you're looking to get rid of a cold.
04:20I believe that is an old wives' tale that I will not be partaking in.
04:23Thank you, though.
04:24Yeah, you can still try and figure out if it truly works or not.
04:27True.
04:27But I think if you're able to use a cliche in some ways, it is the best of times and
04:31worst of times because there's no denying the fact that more of the market is, more of the business is
04:36going to gravitate towards private markets.
04:39That is just undeniable.
04:40That is where it's, that shift is happening, has been happening for a few years and will continue to happen.
04:45At the same time, a lot of people have crowded into the space without the necessary level of expertise and
04:52there will be a lot of people who will be flushed out.
04:56And that's why you have some of the jitters that you have right now.
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