🍋 Private Equity Under Pressure

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Good Morning! Inflation and high-interest rates have already put a strain on the wallets of Americans, and now economists think the banking turmoil could make it harder for some Americans to buy homes and cars (what a time to be alive). In some positive news for homebuyers, last month the year-over-year US home prices fell for the first time in 11 years.

Credit Suisse investment bankers are reportedly swarming headhunters and looking for new gigs. The UBS acquisition is expected to cut up to ⅓ of the bank’s 120k workforce. And spring break travel is finally expected to top pre-pandemic levels as more Americans get their party on.

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1. Story of the Day: Private Equity Under Pressure

It’s looking like some of private equity’s biggest backers are starting to rethink their investment strategies. Public pension and investment funds have aggressively pursued private equity over the past decade. But a new Wall Street Journal survey found that many state and local retirement systems are beginning to pull back and test the waters in the public markets.

Pension funds are private equity’s bread and butter, and are the one of the industry’s largest sources of investment capital. Pension administrators commit billions of retirees’ dollars to private equity firms, and are a big reason private equity firms can charge massive fees.

But some pension administrators are finding they can achieve the same results if not better through public market assets and real estate/infrastructure portfolios.

And by eliminating private equity from their investment strategy, pension administrators are avoiding the administrative/reporting headaches and exorbitant fees (2 and 20) typically associated with the asset class.

Takeaway: Private equity has become increasingly expensive, risky, and difficult to trade. And the return of higher yields on bonds is tempting some investors away from the asset class. Private equity came into this year with a record amount of dry powder. But with some firms like Tiger Global writing down the value of its private investments by over a quarter, look to see if this trend continues in 2023.

2. Markets Rundown

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Stocks rallied ahead of Wednesday’s interest rate decision day.

Movers & Shakers

• (+) First Republic ($FRC) +29% because the bank is looking at new capital options.

• (+) UBS ($UBS) +12% continued to rally after the Credit Suisse deal.

• (+) Tesla ($TSLA) +8% after Moody upgraded the stock to investor-grade status.

Private Dealmaking

• Gravie, an employer health benefits company, raised $179 million

• Switch Therapeutics, a developer of RNA medicines, raised $52 million

• Ampersand Biomedicines, a developer of programmable medicines, raised $50 million

• Till Payments, an Australian payments fintech startup, raised $47 million

• Parker, a corporate credit card provider, raised $37 million

• Cast.ai, an automation and cost management startup, raised $20 million

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3. Top Reads

• Small bank struggles could hit the real estate market hard (Axios)

• UBS got Credit Suisse for almost nothing (BB)

• Credit Suisse bondholders prepare lawsuit after contentious $17 billion write-down (CNBC)

• The Fed pause could do more harm after the banking crisis (YF)

• Is TikTok too big to ban? (Vox)

• Even the hottest startup categories are not immune from the venture slowdown (TC)

• What happens when private equity firms buy hospitals? (HBR)

• Nvidia goes all in on AI (YF)

• Commercial property debt creates more bank worries (Fox)

• Everything bankers thought they knew about deposits might be wrong (WSJ)

4. Shortform Book of the Day: Disrupted

Read More Books, Faster - Shortform offers super-detailed guides to 1000+ books in categories like finance, careers, self-improvement, and more. Their comprehensive coverage and deep insights will give you the world's greatest ideas without the fluff.

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For twenty-five years Dan Lyons was a magazine writer at the top of his profession--until one Friday morning when he received a phone call: Poof. His job no longer existed. "I think they just want to hire younger people," his boss at Newsweek told him.

Fifty years old and with a wife and two young kids, Dan was, in a word, screwed. Then an idea hit. Dan had long reported on Silicon Valley and the tech explosion. Why not join it? HubSpot, a Boston start-up, was flush with $100 million in venture capital. They offered Dan a pile of stock options for the vague role of "marketing fellow." What could go wrong?

HubSpotters were true believers: They were making the world a better place ... by selling email spam. The office vibe was frat house meets cult compound: The party began at four thirty on Friday and lasted well into the night; "shower pods" became hook-up dens; a push-up club met at noon in the lobby, while nearby, in the "content factory," Nerf gun fights raged.

Groups went on "walking meetings," and Dan's absentee boss sent cryptic emails about employees who had "graduated" (read: been fired). In the middle of all this was Dan, exactly twice the age of the average HubSpot employee, and literally old enough to be the father of most of his co-workers, sitting at his desk on his bouncy-ball "chair."

“Maybe the best way to do something really innovative is to hire a bunch of young people who have no experience and therefore no preconceived notions about how to run a company.”

5. Short Squeez Picks

• 3 tips to become a master conversationalist

• Are micro-stresses good for you?

• How and why to think of the world in terms of supply chains

• If you only read a few books in 2023, read these

• Tails, you win

What Else to Read: Looking for Private Real Estate Opportunities? We've Got You Covered

We're going to keep this short and sweet. If you're looking for direct and private real estate investment opportunities, then subscribe to The Last Cast Letter.

In this monthly briefing, Brooks Dyroff (ex-J.P. Morgan and Blackstone Real Estate) outlines his thoughts on specific real estate investment trends and ideas. For example, he just did a deep dive into Miami Beach workforce housing.

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6. Daily Visual: Share of Total TV Consumption by Type

_{Source: Axios}

7. Daily Acumen

For only the second time in NCAA basketball tournament history Fairleigh Dickinson, a 16 seed, beat Purdue, a 1 seed. Ben Cohen in the Wall Street Journal writes why this might be the biggest upset ever. Cohen writes:

The Knights’ upset was far more improbable by various metrics. FDU was a 23-point underdog in most sportsbooks, while Virginia was favored over UMBC by only 20.5 points.

FDU had a 1.5% chance of winning before the game, according to the college-basketball data emporium kenpom.com, and UMBC’s win probability was 2.5%. Of the 363 teams in Division I, they ranked 312th entering March Madness on kenpom.com, the lowest of any NCAA tournament team since 2002.

Morgan Housel writes:

Once-in-a-century events happen all the time because lots of unrelated things could go wrong.

If, in any given year, there’s a 1% chance of a new disastrous pandemic, a 1% chance of a crippling depression, a 1% chance of a catastrophic flood, a 1% chance of political collapse, and on and on, then the odds that something bad will happen next year – or any year – are … pretty good.

Expect more of the impossible to happen more frequently, especially with the rise of the internet and accelerating artificial intelligence allowing data and information to move at the speed of light.

8. Memes of the Day

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