Private equity — the exit bottleneck (new) Structurally stuck ▼ — a record backlog, PE-to-PE hot potato, and a shut IPO channel

AUG-16 (Jay Singh, SSR) — the red flag of the week. "Private equity is stuck with 33,575 businesses, which they have to freaking sell. And this number has been going up every single year" — 32,451 at the end of last year and only 15,923 a decade ago (PitchBook, via the NYT). The exit channel is largely internal: "80% of private equity deals are just PE firms selling their companies… from one private equity firm to the other. And I think less than 10% are IPOs. So it's really just a game of hot potato, or a Ponzi scheme where these guys are just selling companies to themselves." The returns no longer justify the fees: from July 2022 to March 2026 US PE generated only 6.4% annually against 15% for the S&P 500 and 19% for the Nasdaq, and only 70 PE-backed companies went public in four years versus 424 in 2017-21 (Deal Logic). Three causes: higher rates removing debt-funded buyers, PE-to-PE demand drying up as firms need more equity per deal, and software — "the most troubled part of the pipeline" — where sponsors bought at 2021 peak multiples and now face AI-disruption de-rating. Case studies: Thoma Bravo's $12B Proofpoint extended its loan by two years "because it almost went bankrupt"; Blackstone still owns ancestry.com six years after paying $4.7B and has extended maturities again; Vista's Solera Holdings ($6.5B in 2016) filed to IPO in 2024 and never listed. Apollo's PE division reported weak results citing delayed exits, and Advent's John Maldonato says "the delays are becoming the new normal." The transmission channels: BDCs (portfolio companies that must refinance and cannot service interest ⇒ more PIK interest), private credit generally, and the pensions and endowments holding the paper — "imagine the pensions stuck with this crap." The one constructive development is Mark Rowan's push to give private credit CUSIPs so it can be listed and traded. 2026-08-17 — the LP side of the bottleneck, quantified: "in private equity, the monetization time frame is now like 7 years." Institutions bought the asset class for the smoothing — "less volatility because you don't have to trade. It doesn't trade" — and "people did this because they thought they could sleep better at night. So, now they're sleeping, but they ain't getting their money back." The concentrated case: "Notre Dame, I believe, has 50% of its endowment in private equity and venture… if you build an infrastructure around, I don't know, a $10 billion endowment, and now… it really is not very liquid. You have to tighten your belts a little bit," and "a lot of colleges are finding that now." Trennert: "I can't think of an industry that benefited more from near zero percent interest rates than private equity." (Trennert/Eisman on Eisman Ep 73, Aug 17) 2026-AUG-30 (Jay Singh, SSR call): corroborated from the Citi piece circulated with the call — "they look at 10-year annualized returns over private equity and global equities, and they say private equity has been declining for several years now. We tend to agree with that." The structural conclusion the report draws: elevated base rates, severe exit bottlenecks for mega-cap portfolio companies and high financing spreads make public special situations, deep-value turnarounds and selective credit arbitrage more attractive on a risk-adjusted basis. The week supplied a worked example in the VCTR / First Eagle structure, where seller Genstar takes ~14.6% economic but only 4.9% voting (the rest in non-voting convertible preferred) under a three-year lock-up — a sponsor accepting illiquidity and no votes as the price of an exit at all. Dillian (2026-SEP-03): explains the slow clock as a liquidity property rather than a sentiment one — “in the public markets, when something unwinds, there is liquidity. You can sell … and the market will reprice very quickly. In the private markets, that doesn’t happen.” The symptom is assets held instead of sold: “portfolio companies not being sold for a really long time and it’s just going to take a long time to find that liquidity. So a bear market in the privates is just going to take a much longer time to play out, but we have not found the bottom yet.” 2026-SEP-07 (Jay Singh) — the second-order effect nobody prices: a four-year distribution drought, with global deal count falling sharply, “which is also why private credit is struggling.” The consequence for public credit: “there's roughly $300–400 billion of interest thrown off these deals, but there are no new LBOs, and there's no new supply. So that cash flow is being reinvested — and it's one of the reasons this cash flow can be reinvested in all these new AI bonds, because there's nowhere else to put it.”