If you believe the bears, private equity could be one of the first things to crack due to surging bond yields. While this is a sector that’s become expert at using debt to juice returns, it is also an industry, as, whose entire history has played out in an era of falling interest rates.
These mid-sized companies are enmeshed in what Gupta calls Main Street; Flexstone’s investments include a port-a-loo company, a manufacturer of plastic bottle caps, and lots of healthcare and healthcare service businesses, a sector Gupta points out accounts for about 18 per cent of the US economy. But it steers clear of both the mega-private equity deals that have become popular in recent years, and the venture capital sector. Its portfolio is also underweight technology, where Gupta says “a lot of bad decisions were made” during the pandemic frenzy.
He says Australian super funds are sharpening their private equity focus in this difficult environment and increasingly want access to newer managers with specialist skills.