Future of Private Equity

At the top a lot of mega funds' equities business has slowed, given the amount of capital invested in the space, the difficulty of growing such large portfolio investments to realize a desired return and market forces. A lot of these funds - Blackstone and Apollo specifically, but the others as well - are rapidly expanding their credit businesses as banks offload these assets due to the new regulatory environment and their desire for the consistent cash flows that credit provides.

The middle market is saturated with firms and over served. With valuation multiples and the amount of capital overhang, it seems that returns in this space will also be compressed for quite some time. Traditional "generalist" models of investing are proving difficult to successfully implement and many of the more successful firms are employing specialist strategies or concentrating in a specific niche to drive value.

Career-wise, partner track is not very common. The reason so many new firms came into the market was because of this fact combined with the demand for these types of investment vehicles. If you can't make partner but have years/decades of experience, go open up your own shop and raise some capital. This is also extremely difficult to do nowadays as the competition for funds is so intense.

Further, the possibility of carry being taxed as income is increasing with each presidential cycle.

Given these facts, will PE remain in high demand as an exit from banking? Can mega funds continue to pay outsize salaries to its employees given the difficulties they face? Will they be shrinking their equities businesses? Will middle market professionals find their salaries deteriorate as IRR expectations dampen, co-investment demand increase and carry taxation increase?