Over the last fifteen years, zero interest rate policy (ZIRP) altered capital markets by impacting discount rates, which created a competitive advantage for private equity firms relative to other buyers of assets. This competitive advantage derived from the fundamentals of asset pricing — discounted cash flows (DCF) — which discounts free cash flows by a weighted average cost of capital (discount rate).
Read MoreIn 2022, Edward Chancellor published a book called The Price of Time, which chronicles the historical relationship of economic activity with interest rates. The conclusion of the book is that low interest rates reduce labor and capital productivity by reducing the threshold for efficiency in the deployment of capital. Chancellor observes that long periods of economic malaise tend to follow periods of capital excess.
Read MoreOver the past fifteen years, the private equity industry relied on M&A as a key pillar in value creation, thereby increasing its reliance on capital markets to finance returns. Over the next decade, higher interest rates will constrain access to capital for private equity owned businesses, lowering the attractiveness of debt funded M&A to generate equity returns.
Read MoreMuch has been made over the past 15 months about the impact of rising rates. Rising interest rates portend an ominous environment for the holders of existing assets, particularly those asset holders that acquired (and therefore priced) investments during a period when interest rates were very low.
Read MoreIn this article we’ll explore the “Sticky Situation” we find ourselves in financially and economically. Decades of easy money met the COVID crisis, knocking the US and global economy off its goldilocks relationship with low interest rates, low inflation, and low growth.
Read MoreI’m going to make a controversial statement — printing money doesn’t cause inflation — they gasp in horror! Though the books, economics classes, inflation theory, and even the Maestro’s autobiography say differently, I’m looking out at the world as a practitioner and seeing something different.
Read MoreThey say, “imitation is the sincerest form of flattery that mediocrity can pay to greatness”. Perhaps we can alter the phrase to say “[adaptation] is the sincerest form of flattery…” as I’d like to mold a well-known talk Charlie Munger gave on July 20, 1996.
Read MoreAt HHC, we believe that the likely return on invested capital for a business over the next 5–10 years should drive the type of transaction we engage in rather than arrive to the scene with a prescriptive approach.
Read MoreIf you asked a group of business school professors to define “risk”, they would dutifully reply, “beta”. Define “beta”, you may respond.
Read MoreOne can trace the roots of capitalism through family business. Since 718, the same family has operated the Hoshi Ryokan, a Japanese inn.
Read MoreMy goal in founding the firm is to create something new, differentiated, and informed by my 30+ year career in private equity.
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