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When the Tailwind Stops: The Private Equity Industry in the New Interest Rate Environment

Summary:
This first report in a new series from the Long-Term Investors think tank at the University of Torino and CEPR expands on the dynamics at play that shape the development of the global private equity industry and its interaction with the interest rate environment and explores the consequences of deceleration in its growth. PDF Download The consistent growth of long-term alternative asset managers in the past four decades coincided with the secular decline in interest rates. This has been an important tailwind for the private equity industry’s development as debt markets became increasingly cheaper, and institutional investors were searching for ways to offset the shrinking yields on their fixed income

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When the Tailwind Stops: The Private Equity Industry in the New Interest Rate Environment

PDF Download

The consistent growth of long-term alternative asset managers in the past four decades coincided with the secular decline in interest rates. This has been an important tailwind for the private equity industry’s development as debt markets became increasingly cheaper, and institutional investors were searching for ways to offset the shrinking yields on their fixed income portfolios. The past decade, however, has marked a new monetary policy regime: short-term rates have been trapped at zero and it is clear that the favourable environment of declining rates will no longer be there. This development is likely to redefine the growth trajectory, composition and economics of the private equity industry in the decades to come. This first report in a new series from the Long-Term Investors think tank at the University of Torino and CEPR expands on the dynamics at play that shape the development of the global private equity industry and its interaction with the interest rate environment and explores the consequences of deceleration in its growth.

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