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This past week, the Federal Reserve – the world’s most powerful central bank – increased its target lending rate by 75 basis points to a high of 1.75%. Judging by the market’s response, one would think that the world was ending. Recession, recession, recession continues to be the common cry. Let’s take a step back and look at where the Federal Funds rate stands in relation to its history, its relationship with some economic variables, and what it means for private equity.

Looking at the Federal Funds Rate from 1955

Here’s a look at the Federal Funds rate from 1955 forward. Highlighted in gray are U.S. recessions. In pink is the 4% threshold. Now, look closely at where the Federal Funds rate has floated prior to the onset of U.S. recessions. Notice anything? In all cases going back to early 1960s, the Federal Funds rate has been above 4% before the onset of a recession. The sole exception was the self-imposed pandemic recession of 2020. The current rate, at 1.75%, is still three 75-point rate hikes away from such a threshold. Of course, if the Fed Board opts to raise rates in each of the next three meetings (July, September, and November), then the upper range of the target rate will be right at the 4% threshold. But, even at 4%, are we likely to enter a recession? If the 1970s and 1980s experience are the periods most similar to today, the answer is no. There likely won’t be a recession in 2023, assuming the Fed avoids going hog wild on the rate increases.

Source: Econometric Studios

The Yield Curve Suggestion

Switching to the yield curve, often considered the best predictor of potential recessions, suggest a U.S. recession is still at least two years off. Typically, once the bottoming of the 10-year yield less the 2-year yield happens, a recession occurs in around a year. Presuming it takes another 6 months to a year to reach the bottom, which suggests a recession in 2023 is less likely than 2024.

Source: Econometric Studios

What does this mean for private equity?

What does this background mean for private equity? Well, it depends. The rising interest rates will certainly put pressure on leveraged buyouts and make other deals less attractive. But, what it doesn’t mean is that valuations will drop significantly because of a pending recession. That view is, as of now, unwarranted.

Summing Up

Overall, although the market’s recent response to rising interest rates suggests an imminent recession, the likelihood within the next 18 months is actually much less probable. It’s likely markets, including the private equity market, will continue to be volatile over the coming months, but the economy will more than likely avoid a recession.


With economists wondering what the next six months holds for the global economy – and private equity mangers carefully watching what the forecasts are – three charts are on the mind of every private equity manager right now. Here’s a look, and what they might mean for the private equity outlook.


The hidden tax – inflation is running at an 8.2% clip (year-over-year), down slightly from its recent March high of 8.6% (CPI, All Urban Consumers). The inflation rates, the highest we’ve seen since 1982, poses a challenge for the workers around the globe trying to keep up with a standard of living they enjoyed just a few years ago.

Interestingly, public and private markets typically perform just fine during periods of transitorily high inflation, but there are two problems with this view. First, the current inflation rate is quite high by historical measures, and many observers think getting inflation back to the 2% target the Fed has for prices will be quite painful. Second, inflation may not be as transitory as some might want to believe. Federal Reserve and administration officials repeatedly argued that inflation was transitory a year ago, but that view no longer holds any weight. Breaking the habit will likely be difficult, and perhaps impossible without causing a recession.

Federal Funds Rate

So far, the most powerful central bank in the world, the Federal Reserve, has been relatively cautious in its response to abnormally high inflation. They have increased their target Federal Funds rate two times to 1%. By historical standards, these two hikes are little in measure, even when viewing the history as the period from 2000 to present. Some might find it odd that the Federal Reserve has been so cautious in increasing rates, when the inflation problem is something people are dealing with now, unemployment is at 3.6%, and unemployment claims are floating near historically low levels. What’s the push against increasing rates faster? Clearly, private asset managers and public markets are having perhaps a large influence on the cautious moves, something that is quite different than what many long-time observers are used to seeing.

Why does the Federal Funds rate matter so much to private equity managers? Besides the effect it has on the broader economy, the Federal Funds rate can affect what it costs fund managers to borrow money, potentially causing some deals to switch from easily profitable to borderline unprofitable.

The Money Supply, M2

The third chart might be a bit of a surprise since money supply is spoken about in the popular press with such nuance, but it perhaps accounts for a good portion of the force behind higher inflation. The figure below is M2, or the Federal Reserve’s second measure of the formal money supply. It includes all the elements of the M1 money supply – cash, checking deposits – and adds savings deposits, money market securities, and other time deposits in amounts less than $100,000. These additions are not perfectly immediate exchange mediums, but can be quickly and easily converted to cash or checking deposits.

Why is M2 so important? Because M2 captures are slice of the money that ends up going to private equity managers and public equities. This money is also a sign of how much funds people have available to spend – a clear driver of the historically strong American consumer.

Summing Up

Overall, private equity mangers are watching economic charts carefully these days, including trends in inflation, the Federal Reserve target rate, and the money supply. Time will tell if these charts end up telling the predictive story of what’s in store for the global economy.


Every quarter, private equity data provider Pitchbook releases their accounting of the most active investors each quarter by several measures. Here’s a look.

Most Active Globally

The first view is of the most active private equity firms globally. Before looking, can you guess any of the top 5? Likely unsurprising for long-time observers of the private equity industry, HarbourVest Partners shows up as the most active globally in the first quarter of 2022 at 69. Rounding out the top five were Silver Lake at 68, EQT at 60, Ares Management at 55, and Shore Capital Partners at 55. The remaining members of the top 10 include Mubadala Investment Company at 50, Sjatte AP-fonden at 45, the Carlyle Group at 40, the Government of Singapore Investment Corporation at 39, and Kohlberg Kravis Roberts at 38.

Source: Pitchbook

Most Active in the U.S.

Switching to the U.S., which investors would you guess show up on the list for investing in U.S.-based companies? On top is Shore Capital Partners at 55, followed by Ares Management at 42, HGGC at 28, Kohlberg Kravis Roberts at 25, and the Carlyle Group at 32. The remaining members of the top 10 included Martinson Ventures at 22, the Government of Singapore Investment Corporation at 22, the Cambria Group at 21, and Silver Lake/HarbourVest Partners at 19 each.

Source: Pitchbook

Most Active Buyouts

Switching to the most active buyouts, on top is the well-known Kohlberg Kravis Roberts at 9. The top five also included Ares Management at 6, Bpifrance at 6, Brookfield Asset Management at 6, Blackstone at 5, Waterland Private Equity Investments at 5, and Partners Group at 5. The remaining top 10 members, each with 4 deals in the first quarter, included Nuveen Real Estate, Salt Creek Capital, Advent International, Argos Wityu, The Riverside Company, Bain Capital, BNP Paribas Development, and Maranon Capital.

Source: Pitchbook

Most Active Add-on Sponsors

Moving to the most active add-on sponsors, the top mover was HarbourVest Partners at 67. Other top five members included Silver Lake at 66, EQT at 58, Shore Capital Partners at 53, and Mubadala Investment Company at 48. The other top 10 members included Sjatte AP-fonden at 45, Ares Management at 39, the Government of Singapore Investment Corporation at 35, the Carlyle Group at 31, and HGGC at 29.

Source: Pitchbook

Most Active in Growth/Expansion

Last, the most active firm in the growth/expansion classification was Martinson Venture at 22. Following Martinson Ventures’ lead was the Cambria Group at 17, Addor Capital at 10, Shenzhen Capital Group at 10, Bpifrance at 10, Ares Management at 10, BGF at 8, Vista Equity Partners at 7, Shenzhen Gaoxin Investment at 6, and the Carlyle Group at 6.

Source: Pitchbook

Summing Up

Overall, the private equity sector continues to be quite active based on several measures. Time will tell whether the activity will continue in the coming quarters as the economy potentially slows.


Looking at the State of Fintech

May 10, 2022

Perhaps the hottest area in venture capital and private equity is financial technology (Fintech). Private equity data provider Pitchbook is out with their take on the state of fintech. Here’s a look. A Timeline Before looking into more detail on the state of fintech, here’s a timeline of events we saw in the first quarter […]

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Looking at Pitchbook’s Top 5 Charts on the State of the Venture Capital World

April 26, 2022

The world is in a state of flux, and the venture capital world is no different. Here’s a look at five charts put out by private equity data provider Pitchbook on the state of the venture capital industry through the fist quarter of 2022. Quite interesting, with some surprising. Venture Capital Investing in the First […]

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A Look at Pitchbook’s New DeSPAC Index

April 13, 2022

With the IPO market icy, Pitchbook recently released an interesting take on the SPAC (special purpose acquisition companies) world – what they call DeSPAC). Here’s a review. Pitchbook DeSPAC Index vs S&P 500 The first view released by Pitchbook on recently public companies follows below. Interestingly, although probably not surprising for follows of the sector, […]

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Some Thoughts on the 2022 Private Equity/Venture Capital Outlook

March 29, 2022

Private equity data provider PitchBook is out with an interesting take on things private equity and venture capital professional have in the back of their minds as they invest in 2022. Here’s their take. The Tight Labor Market is a Problem but Also Perhaps a Boon The American labor market is tight, quite tight. The […]

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What the Ukraine War Might Mean for Private Equity?

March 15, 2022

On February 24th, the 2022 private equity outlooked changed – by a lot.  What does it mean for the 2022 outlook? Let’s take a brief look. Importance of Russian and Ukrainian Economies Although neither Russia nor Ukraine has large, globally influential economies (neither are in the Top 10), business activity matter, especially for certain industries, […]

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Which Industries Dominated Mergers and Acquisitions in 2021?

March 1, 2022

Last year, we saw a historic year in mergers and acquisitions activity (M&A). According to Mergermarket, deal volume rose to a peak of almost 3,000 deals in the second quarter of 2021, slowing to around 2,000 to end out the fourth quarter of the year. The 2,000 deals to end the year were much more […]

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Private Equity Investors Getting Into Residential Real Estate – It’s a New World

February 14, 2022

In the real estate world, one of the more influential changes happening is the increasing importance of private equity investment firms in the market. Here’s a look at the state of the trend. Investor Market Share: National Basis The case in point comes from the following graph. It shows the investor market share (on a […]

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