For those reading tea leaves, last weekend had some interesting news. Warren Buffet’s annual letter came out. Although it was shorter and less interesting than historical precedent, it did include a blurb about that, despite looking for years, Buffett couldn’t find anything large (by Berkshire Hathaway standards, 10s of billions of dollars) to buy, as prices were too high, and that he preferred public stocks.
Wow. Eye opening and illuminating. If you needed a blinking yellow light for investing in private equity, that was it. An article also came out in the Financial Times stating that several upstart private equity firms had graduated to the “major leagues” of private equity and were competing with KKR, TPG, Apollo and Blackstone for the elephant sized deals. This not only partially explains why Buffett can’t buy anything (too much competition), but also explains why private equity acquisition prices are at all time highs – too much money chasing too few good deals and ideas!
You’ve had a steady drumbeat from me and the Annandale team on how risky and pricey we think public stocks are, except for emerging market stocks overseas, and that the next 5-10 years are likely to provide lower than average annual returns. If Buffett prefers public investments to private ones, what does that say about the attractiveness and future returns over the same time period of private investments? It’s not promising, I can tell you that.
Those investing new capital today should be wary in public AND private markets, both. High conviction is a minimum standard for even considering anything. Be careful out there.