YouSaid · the spoken record

Hugh MacArthur

lines on the record: 86
first: 2025-06-23
most recent: 2025-06-23
sittings or episodes: 1
sources: podcast

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“I hope it's about successful transition. I am a dad of four kids. I have one that's in college. I have two more that will be going to college during the next five years. I have one that will shortly go to college after five years. And so we will become empty nesters during that point. I am not sure how my work life is going to evolve during that point in time. These markets are so different. I'm trying to think about, well, what do I want to spend my time doing over the course of the next five years? And I'm 60 years old. I still have a lot of appetite to be busy and doing work, but exactly what I do in my day-to-day life is sort of a question mark with trying to successfully marshal kids off to schools and make sure that they're launching their own lives, which will be 90% uncertain, which I'm telling them too, everything else in advance. I think the next five years, if I had the chapter, it would be entitled Open to Possibility Amidst Transition. That's too long, but we'll call it that anyway.”
2025-06-23 · Capital Allocators · Hugh MacArthur – Private Equity's Challenges and Opportunities (EP.453) · IDENTIFIED FROM THE TRANSCRIPT · source
“Discovered that it's a much deeper pool than I ever thought it was. And once you jump in with both feet, there are more and more things to learn than I had ever imagined. The cartoons of how things have come to be that I learned as a child are actually not cartoons. They're very deep ideas and very deep philosophies that very smart people have studied and learned a lot more about than I ever will. And so I'm trying to play catch up and pay attention and figure out what that means that I'm supposed to do in my own life going forward.”
2025-06-23 · Capital Allocators · Hugh MacArthur – Private Equity's Challenges and Opportunities (EP.453) · IDENTIFIED FROM THE TRANSCRIPT · source
“A mystery that I wonder about a lot is the origins of the universe. I'm kind of a faith family and football guy, but I do a lot of reading about faith, about the origins of the universe, about the origins of us as a species. I'm interested in how man came to be, how faith plays into that, what it should mean for me every single day. And I try to learn about that. I read about it. I study it. I try to model my life after what I think I should be doing. And I find that that's a journey that I picked up when my kids were born. I'm trying to really understand the world that I'm in and what I'm supposed to do in a way that I hadn't spent a lot of time doing earlier in my life. And I find it challenging, intimidating, and rewarding all at the same time.”
2025-06-23 · Capital Allocators · Hugh MacArthur – Private Equity's Challenges and Opportunities (EP.453) · IDENTIFIED FROM THE TRANSCRIPT · source
“Think you're a planner, there is no way you are going to be able to predict the specifics of what's going to happen and where. And you might miss some of the best opportunities if you try to organize your life that way. So I try to be open to possibility because I've learned that whether I'm open to it or not, things are going to probably churn out a little bit differently specifically than I had planned in the beginning.”
2025-06-23 · Capital Allocators · Hugh MacArthur – Private Equity's Challenges and Opportunities (EP.453) · IDENTIFIED FROM THE TRANSCRIPT · source
“My life in many ways has been way better than I would have expected it to. I was a daydreamer in college, so I kind of hoped it was going to be a good life. But the advice that I give a lot of young people as I reflect on my own life is that pretty much 90% of the specific things that have happened in my life, I could never have planned for. I kind of had a macro journey in place. I wanted to go to college, get a job. Thought I wanted to go to business school, get married, have kids. That's a very generic description of my life. I did all of those things, but all the specifics around those, I had absolutely no idea. So I had no idea I was going to go to the schools I went to. I had no idea I was going to work at a place like Bain. I had no idea I was going to be at the same company for 30 years. I had no idea I was going to meet my wife. I had no idea. I tell people, be open to opportunity because there's more opportunity in your life that's going to come your way for specific decisions than you can possibly plan it. No matter how stressed out you are.”
2025-06-23 · Capital Allocators · Hugh MacArthur – Private Equity's Challenges and Opportunities (EP.453) · IDENTIFIED FROM THE TRANSCRIPT · source
“My first paid job was back in 1981 as a sophomore in high school, and I worked after school for a few hours a day at a women's clothing store after it closed. I vacuumed things and I cleaned the bathroom and I painted the bathroom and I cleaned things up. The most important thing I learned from it was I got fired from that job. I got fired because I didn't turn up one day. And I don't remember why I had something else to do.”
2025-06-23 · Capital Allocators · Hugh MacArthur – Private Equity's Challenges and Opportunities (EP.453) · IDENTIFIED FROM THE TRANSCRIPT · source
“There's a lot of hobbies and activities that I have. I'll pick out one. I am a longtime frustrated gardener. I relocated years ago from Massachusetts where it's very easy to be incredibly frustrated as a gardener to Florida. And so instead of just failing at tomatoes, cucumbers and zucchini, I can now fail at mangoes and avocados and grapefruits and bananas as well. I do enjoy getting out and getting my hands dirty and doing something just completely different and digging in the dirt and trying to grow things. And sometimes it works and sometimes it doesn't. But as gardeners, we try to hide our mistakes and then celebrate our victories. So I try to cover up the mistakes as quickly as possible.”
2025-06-23 · Capital Allocators · Hugh MacArthur – Private Equity's Challenges and Opportunities (EP.453) · IDENTIFIED FROM THE TRANSCRIPT · source
“In most people's lives. And I think AI is on the same kind of trajectory. It's going to take a while to get going or in the experimental phase, whether it's consulting or some other business. But boy, when it gets going, I don't know what the iPhone equivalent is going to be in every industry, but it's coming. It's probably going to be a lot deeper impact than we see.”
2025-06-23 · Capital Allocators · Hugh MacArthur – Private Equity's Challenges and Opportunities (EP.453) · IDENTIFIED FROM THE TRANSCRIPT · source
“The computer center, and we played games on it most of the time. We wrote papers on it, and we played games on it because there weren't many apps for the computer back then. There were not even hard drives back then for the computer. And so for about 10 years, there was a huge hype over PCs in everybody's house. But if it's a glorified typewriter, there's not that much that people were going to do with it at home because there was no app for that. And in the 1980s and even 1994, 10 years in, there was still a question of I thought this was going to transform the world. And it really hasn't. Then of course the internet came along and became popularized two to three years after that and things really started to take off. But my point is we're now at the iPhone and the iPhone has changed everybody's life in incredibly dramatic ways that no one would ever have thought of in 1984 looking at that Macintosh computer. The Mac took a long period of time on the PC to actually do what it was supposed to do because it lacked apps, but the Mac has kind of morphed into the iPhone.”
2025-06-23 · Capital Allocators · Hugh MacArthur – Private Equity's Challenges and Opportunities (EP.453) · IDENTIFIED FROM THE TRANSCRIPT · source
“We know that's going to happen. That's going to happen to consulting too. So, what do our set of solutions need to look like for our clients to make sure that we get them speed to insight on the front end as fast as humanly possible or machine-aided humanly possible? And how fast do we get speed to value once they actually own something? This whole discussion of AI, it does remind me of the personal computer industry. I think that the full impact of AI is going to take a lot longer than most people think from just reading the newspaper or consuming media. But I do think that ultimately it will be much more deeply transformative to every business in the future than now. And when I think back to is my days as a college sophomore, when the Macintosh computer was invented, which is 1984, every student was required to buy a Macintosh. And so the computer revolution was here. We're all going to have a personal computer. We're all sitting in our dorm rooms. It's all wired in.”
2025-06-23 · Capital Allocators · Hugh MacArthur – Private Equity's Challenges and Opportunities (EP.453) · IDENTIFIED FROM THE TRANSCRIPT · source
“As I mentioned earlier, Ted, we think there is almost an inexorable movement toward more money pouring into private asset classes. So we will continue to broaden our business when we first started. We literally just looked at buyouts and private equity. And now there is venture capital growth capital, all different kinds of flavors of ice cream and private equity that didn't exist back in the 1990s. We have private credit that's 6x the size it was 15 years ago that we now work in, infrastructure, real estate. There are many, many different private asset classes that we now spend our time working in with GPs and LPs that are growing and getting supersized that were just not as growthy when we first started the business. So for our practice, it's doing a lot more things with a lot more people, which drives a lot more questions around strategy. And for our own business and how to do that, we're in the physician healed by self mode, which is AI is changing the world.”
2025-06-23 · Capital Allocators · Hugh MacArthur – Private Equity's Challenges and Opportunities (EP.453) · IDENTIFIED FROM THE TRANSCRIPT · source
“Is helping them prepare for the next five years and figure out what their liquidity issues are going to be by talking to their GP partners and just having conversations they haven't had before.”
2025-06-23 · Capital Allocators · Hugh MacArthur – Private Equity's Challenges and Opportunities (EP.453) · IDENTIFIED FROM THE TRANSCRIPT · source
“Money back. So let's talk about a three year window and you take me through the whole portfolio as discussion one. Discussion two is how prepared are you for the future on the LP side, the world is changing. We've talked about a lot of those elements that are going to change in the future. So you, Mr. GP, I want to have a conversation with you about your strategy and why you're going to be a winner five to seven years from now. Tell me about how you anticipate your fee income changing over time given these things like co-invest in the market and where you're sourcing capital and tell me your plan for sourcing retail capital because as an institution, I want to know that I'm still important to you over time, how much retail capital are you going to raise? What are your costs doing? What are your fee related earnings going to be? How many LPs have ever asked to GP what their P&L looks like? Yeah, the public ones have to report it every quarter. 99% of the industry never has to report it. That's a conversation that never happens and LPs need to start having this conversation. So the work we're doing with LPs right now.”
2025-06-23 · Capital Allocators · Hugh MacArthur – Private Equity's Challenges and Opportunities (EP.453) · IDENTIFIED FROM THE TRANSCRIPT · source
“LPs are on the other side of the coin, obviously. And they need to think about having more structured conversations with their GP partners. It's a relationship. Many of these relationships between GPs and LPs have around for decades. It's a different type of conversation. The conversation begins with talk to me about your portfolio. Talk to me about your liquidity plan for the next three years. Typically, many GPs, they sell something when the MD that led the deal said we're ready to sell. Let's go. I don't want to have that conversation. I want to have the conversation around show me your whole portfolio. Let's talk about the next three years. When do you expect things to go? Why? And at what sort of level of return. So I can help with my cash flow planning. Let's have a structured conversation about the entire plan for that. That's something that happened in 2008 and 2009 when too many people were thinking that the private equity portfolios were all going to go bust. I don't think anybody's worried about that, but people are worried about when am I going to get my...”
2025-06-23 · Capital Allocators · Hugh MacArthur – Private Equity's Challenges and Opportunities (EP.453) · IDENTIFIED FROM THE TRANSCRIPT · source
“The other side, if you're an institutional LP that is down the middle, meaning they have a relatively mature portfolio, they have some of the similar liquidity issues than others. How do you advise LPs to think about their strategy going forward?”
2025-06-23 · Capital Allocators · Hugh MacArthur – Private Equity's Challenges and Opportunities (EP.453) · IDENTIFIED FROM THE TRANSCRIPT · source
“It really starts with your DNA. How have you been so successful over time? What is it when you're at your best that you do that is uniquely driven your success? Coming out of a world where we had these very attractive structural economics for the industry where everybody could earn a lot of money as long as you were doing smart deals over time and getting into a much more intensely competitive world, you need to sharply distinguish and specifically articulate what it is that you do well. There needs to be a there, which for most firms that have been around for a while, there's a there there. That's why they've been for a while. But what is it? Can you write it down on a piece of paper?”
2025-06-23 · Capital Allocators · Hugh MacArthur – Private Equity's Challenges and Opportunities (EP.453) · IDENTIFIED FROM THE TRANSCRIPT · source
“There are only a few firms today that are large enough to be the likely scale players. What are the elements of strategy that you tell someone who may not clearly know exactly where they fit in and are worried that they might not be one of the winners?”
2025-06-23 · Capital Allocators · Hugh MacArthur – Private Equity's Challenges and Opportunities (EP.453) · IDENTIFIED FROM THE TRANSCRIPT · source
“Do it well, and you're not quite differentiated enough to create alpha reliably in an LP's mind, it's going to be hard to see how those folks win”
2025-06-23 · Capital Allocators · Hugh MacArthur – Private Equity's Challenges and Opportunities (EP.453) · IDENTIFIED FROM THE TRANSCRIPT · source
“Juice alpha, juice returns over time. The challenge is going to come for folks that are trapped in the middle. If you've done really well, but you don't quite have that size to make the investments required to be part of the dismantling of the Rue Goldberg machine, and you don't have the alpha generation capability to be able to deliver outsized returns going forward, are you going to be able to find enough support and access to things like the private wealth channel or other channels where the bar is going up, other correlation to this is that institutional investors that are part of this liquidity squeeze that we've been discussing, they're going to continue to write checks and invest in private equity, but it's going to be much more of a zero-sum game. If I'm going to get an allocation from a certain LP, somebody else is probably going to lose their allocation from that LP. So the bar on commercial excellence and relationships and making sure customer success actually happens is going to go up for those institutional investors. And that adds more costs. So if you're not quite big enough to be able to do that.”
2025-06-23 · Capital Allocators · Hugh MacArthur – Private Equity's Challenges and Opportunities (EP.453) · IDENTIFIED FROM THE TRANSCRIPT · source
“Global industry, it's not finished. And this is part of the change that's going to have to happen for individuals to invest, for the industry to continue to grow, is that we need to streamline the machine, use technology, get it into the 21st century, and that is happening. So who's going to win in that environment? To me really comes down to a couple of things. It's number one, you got to recognize this is what's happening, whether you like it or not. Number two, you're going to have to have the scale in order to participate in this because it means as a GP, you're going to have to invest in technology. You're going to have to invest in private wealth and retail capital. You're going to have to invest in new processes that are going to be different than they were in the past. Or you need to be specialized enough that you're an alpha generator that people feel like they have to have because you know how to do things that other people don't know how to do as well as you and you can repeatably do them and you proven it and therefore you're the shiny thing in the window and there's always going to be appetite for that too.”
2025-06-23 · Capital Allocators · Hugh MacArthur – Private Equity's Challenges and Opportunities (EP.453) · IDENTIFIED FROM THE TRANSCRIPT · source
“That is one of the hardest questions to answer. My friend Jim Colter over at TPG said that the private equity industry is like a Rube Goldberg machine. And for those of you that didn't waste your childhood watching Three Stooges shorts like I did, a Rube Goldberg machine, it's a massively complicated machine that actually does something very simple. So I could go through three rooms of different mechanical things that all happen and bump against one another, and then it puts the lever on the toaster down and the toast goes down at the end. And he said, the private equity industry is a Rube Goldberg machine because what we do is incredibly simple. We buy companies, we make them more valuable, we sell companies at a profit. And yet all these subscription documents and K1s and reporting and all of the hoopla around it is incredibly complicated to work through. And that was all fine when it was a cottage industry in the 1990s and it was a few folks with LLC agreements buying a few companies. Now that private equity is a five trillion dollar”
2025-06-23 · Capital Allocators · Hugh MacArthur – Private Equity's Challenges and Opportunities (EP.453) · IDENTIFIED FROM THE TRANSCRIPT · source
“That's providing the access. And so it'll happen, and it's happening much faster than I would have predicted two or three years ago. So I do think that we're going to see private wealth at scale and private markets very, very quickly.”
2025-06-23 · Capital Allocators · Hugh MacArthur – Private Equity's Challenges and Opportunities (EP.453) · IDENTIFIED FROM THE TRANSCRIPT · source
“About these types of opportunities. We run surveys every single year of ultra-high net worth individuals, and we ask them, can you name three respected private asset managers for us? And the number one answer every single year is I don't know. As long as that is true, we do have an educational hurdle to get over before people are going to be piling into a lot of private assets. But I think like everything else, the industry will get over this issue. There are some institutions that are big enough to build their own brands and they are building brands right now. There are other institutions where the brand is already well known. I mentioned the Black Rocks, the Fidelities, the Vanguard of the world. A lot of people know those brands. And if they start selling private product and start educating people that for your 401k, you should have a little bit of an allocation into private equity, then that's going to work. That's going to be their task to do, but the brand is known at least of the intermediary.”
2025-06-23 · Capital Allocators · Hugh MacArthur – Private Equity's Challenges and Opportunities (EP.453) · IDENTIFIED FROM THE TRANSCRIPT · source
“Out there. So GPs want it because others are liquidity constrained right now. Traditional asset managers want it. If you're a Vanguard or a Fidelity or a BlackRock and you're selling ETFs at 10 basis points, that's what you're charging for them. How'd you like to sell some private product at 100 basis points or 200 basis points or 300 basis points or pick your price? They're pretty interested in that as well. Everybody in the industry wants this to happen. In my experience, when everybody wants something to happen, it's going to happen. The question is just how rapidly is it going to happen? And what kind of an impact is it going to happen? I mentioned half the world's wealth is in private capital. If you just assume five or ten percent on average of somebody's portfolio is in private assets, that's trillions of dollars. That's doubling the private asset industry. So you don't have to believe that you and I as individuals are going to have half of our net worth into the private markets to believe it's going to have a huge effect. It's just a question of how rapidly are the right products going to be made available and distributed and how rapidly are people going to be educated.”
2025-06-23 · Capital Allocators · Hugh MacArthur – Private Equity's Challenges and Opportunities (EP.453) · IDENTIFIED FROM THE TRANSCRIPT · source
“Think the answer, Ted, is yes, we do see that money coming at speed because individuals would like to have access to private markets. And why is that? We've learned over the last 15 or 17 years taking the United States as an example that the number of public issuances is less than half of what it was in the early 2000s. And a few tech stocks tend to dominate how the market performs. That could be a wonderful thing because tech stocks have done great. But at some point individuals say, well, I have enough of that exposure to NVIDIA. What else have you got? And their advisors are telling them, you need to diversify. You need to diversify away from these few stocks and these few areas that are actually providing a lot of fuel for your portfolio growth, but you need other things in there to be more diversified and safe in case something happens. That's private assets. So advisors are recommending it. Individuals want it. It is the great whiteboard of capital.”
2025-06-23 · Capital Allocators · Hugh MacArthur – Private Equity's Challenges and Opportunities (EP.453) · IDENTIFIED FROM THE TRANSCRIPT · source
“So much of what we talk about are real challenges going forward. And then there's this fundraising trend of all this money of wealth that's going to come in. How is that balanced between the institutions that are not piling money back into private? They're already there. And then you have this interest in wealth. How do you see that playing out?”
2025-06-23 · Capital Allocators · Hugh MacArthur – Private Equity's Challenges and Opportunities (EP.453) · IDENTIFIED FROM THE TRANSCRIPT · source
“Generating operating leverage for growing assets is a big challenge as well. You can see that the assets going to grow. You can see that you need to invest for that growth, but how to really create operating leverage while you're doing that is not something that a large part of the industry is familiar with as an investment thesis. It's relatively new. In the 1990s, if you said, hey, let's go get some software businesses and lever them up. And that'll be a great way to do a buyout. People would have laughed at you. That was not the buyout industry. And now it's the single biggest sector in all of buyouts. And some investors, of course, have figured this out. The rule of force.”
2025-06-23 · Capital Allocators · Hugh MacArthur – Private Equity's Challenges and Opportunities (EP.453) · IDENTIFIED FROM THE TRANSCRIPT · source
“Over the last decade, the data is not as good as it was in the decades before. Part of that is the competition for a lot of these deals has gone up over time. So Carveouts is a good example. Our average carve out prior to about 2012 was a 2x deal because the industry had figured out that unloved businesses that weren't part of somebody else's core but were good businesses in and of themselves could be invested in and you could get revenue growth, margin expansion, and multiple expansion on the back end of the deal. The problem is when everybody figures that out and everybody starts looking for carve outs, then the prices go up. And a lot of that you have to pay for before you even get the asset. Now in the last decade or so, the average carve out is earning more like one and a half times and trailing the rest of the industry. It used to be the best source of deals in terms of value. Now it's one of the more challenging sources simply because it's known as a source and you have to pay for some of that. I also think that this question of really”
2025-06-23 · Capital Allocators · Hugh MacArthur – Private Equity's Challenges and Opportunities (EP.453) · IDENTIFIED FROM THE TRANSCRIPT · source
“If you look at some of the types of deals that you would think would lend themselves to that operational improvement more value-based than growth buys, carve-outs, things like that, what's the history shown of the success of those types of deals over the last decade?”
2025-06-23 · Capital Allocators · Hugh MacArthur – Private Equity's Challenges and Opportunities (EP.453) · IDENTIFIED FROM THE TRANSCRIPT · source
“Get real operating leverage. All the cash flow can't go into customer acquisition and customer success or wherever it's been going that's caused a lot of these businesses that have grown real fast to not grow margins or even have margin shrink over time. So getting back to and learning how to make margin expansion really a part of the value addition equation is going to be the critical asset test, I think, for this industry to continue to generate really attractive returns going forward because you only got two controllable levers. One's revenue and one's margin expansion. The multiple is going to be what it's going to be over time. And most firms that I know don't model in big multiple expansion as a way to success because you just can't control that.”
2025-06-23 · Capital Allocators · Hugh MacArthur – Private Equity's Challenges and Opportunities (EP.453) · IDENTIFIED FROM THE TRANSCRIPT · source
“Along with the fact that the industry fell in love with underwriting growthier assets, fast growing software businesses, fast growing healthcare businesses, and multiples went up and up and up over time. As you pointed out, I don't think we're in that environment anymore. There are certainly, in some cases, opportunities for multiples to go up with certain assets. But I don't think the industry can bet that the amount of value that was due to multiple expansion in the next 10 years is going to look like it did the last 14 years. Therefore, what do I do about that? Well, I still need my revenue growth. That's good. But that margin expansion on average cannot be zero going forward if we want to have attractive returns. My mean margin expansion in both senses. One is, yes, there's still value investing and there's room to take out cost for businesses that are bloated and that need to be streamlined and made more efficient. But with all of these fast-growing businesses, whether we're talking about software or healthcare IT or fintech, whatever you're betting on that's growing fast, we need”
2025-06-23 · Capital Allocators · Hugh MacArthur – Private Equity's Challenges and Opportunities (EP.453) · IDENTIFIED FROM THE TRANSCRIPT · source
“The data is really, really clear on this. If you look at the last 14 years of realized returns, roughly speaking, 50% of the returns of buyouts have been due to revenue growth. 50% has been due to multiple expansion, largely owing to the low interest rate structure that we were talking about. And zero has been from margin improvement. For a dinosaur like me that's been kicking around this industry for over 30 years, having zero percent of the value creation on average come from margin expansion is unthinkable. This entire industry was founded on buying unloved industrial businesses, fixing them up, getting them to run more effectively, and then selling a better business for a better price. That's the history and the DNA of the buyout industry. We had this anomalous 10-year span where I really didn't have to do that because I had this zero central bank interest rate, constant GDP growth environment that was creating multiple expansion.”
2025-06-23 · Capital Allocators · Hugh MacArthur – Private Equity's Challenges and Opportunities (EP.453) · IDENTIFIED FROM THE TRANSCRIPT · source
“You look retrospectively at this environment of low interest rates, increasing multiples and good returns for all private equity without the likelihood of multiple expansion, you got higher cost of debt, how does the historical experience inform what might need to happen on operational improvements so that private equity can drive returns in the future?”
2025-06-23 · Capital Allocators · Hugh MacArthur – Private Equity's Challenges and Opportunities (EP.453) · IDENTIFIED FROM THE TRANSCRIPT · source
“Out there with those kind of doubling of the interest rates. Now I don't have 5% debt. I have 10% debt that I'm trying to put on it. My buildup doesn't work at 10% debt that wasn't the model. So what does one do with a halfway done leverage buildup in order to create value if I can't do the rest of the buildup part of it? There's questions like that that are the big ones where you have to think, okay, I have a valuable asset here. I can't go with plan A, but I need a plan B or a plan C. And so what is Plan B and what is plan C, which may be completely different than Plan A, and then have time to execute on that, show traction, show real results, and give people confidence that it's worth a certain multiple upon exit. With some of these assets, it will take time if they require a substantial repivot in order to get them into a position where they can be liquidated at an attractive rate of return.”
2025-06-23 · Capital Allocators · Hugh MacArthur – Private Equity's Challenges and Opportunities (EP.453) · IDENTIFIED FROM THE TRANSCRIPT · source
“That's the big question everybody's asking. What we know is that the average GP has twice as many businesses in their portfolio than they had 10 years ago. That's a lot of companies to look after. GPs are not house flippers. Companies are organic things that need to actually be tended and they need to be pivoted, reprogrammed, or some other ways improved in order to get on an exit path. That can take 12 months to 24 months. If you need to really repivot something or rapidly accelerate performance, that takes planning. That can take investment. That can take time. There are lots and lots of companies out there that are doing buildups. Buildups are I started with a platform and I added one or two companies to it or I added 22 companies to it. I added some number of companies to it over time and then I'm going to sell it. Imagine if you were a GP that was halfway done with your buildup when 2022 and 2023 happened and interest rates went up 500 basis points over 18 months. Well, I'll bet there's a lot of stall buildup.”
2025-06-23 · Capital Allocators · Hugh MacArthur – Private Equity's Challenges and Opportunities (EP.453) · IDENTIFIED FROM THE TRANSCRIPT · source
“To the extent that the thread through that is businesses that are doing well are the ones that get sold or have a partial sale, what does that leave behind in the portfolios of both GPs and ultimately the LPs?”
2025-06-23 · Capital Allocators · Hugh MacArthur – Private Equity's Challenges and Opportunities (EP.453) · IDENTIFIED FROM THE TRANSCRIPT · source
“Have comfort that we're not going to see a recession that will impact it or we're not going to see macro issues. It will be a problem. And we're seeing the kind of balance sheet EBITDA growth movement that will allow us to refinance a deal and make the numbers work for the seller.”
2025-06-23 · Capital Allocators · Hugh MacArthur – Private Equity's Challenges and Opportunities (EP.453) · IDENTIFIED FROM THE TRANSCRIPT · source
“It's playing out in a lot of different ways. The sponsor to sponsor activity was up in 2024. I take that as a good sign. The bid ask spread problems are getting a little better, meaning interest rates have come down a bit. We've had two years of non-recessionary GDP growth that means EBITDA has gone up a little bit. And the more of those things kind of happen, the less the spread is an issue. We've also seen that deals that are faster growing companies where debt has been less of a percentage of the capital structure. So a lot of fast growing businesses may only have 30% debt on the capital structure and 70% equity. So the bid ask spread issue is less of an issue. Some of those software businesses that are doing really well are able to trade at good amounts. Some things in healthcare that are growing really rapidly are able to trade. So if you have less debt in your capital structure, it's easier to get a deal done two years down the road from when interest rates really spiked up over those 18 months by 500 basis points. But it's in those kinds of industries where people...”
2025-06-23 · Capital Allocators · Hugh MacArthur – Private Equity's Challenges and Opportunities (EP.453) · IDENTIFIED FROM THE TRANSCRIPT · source
“You look at the different exit avenues or the IPO market hasn't been around for a long time en masse. Strategics have tremendous uncertainty in the economic environment. You're left with the sponsored to sponsor activity. If you're a GP looking to buy a business, you're a GP looking to sell a business, there's this feeling of a gap in the bid ask spread. How is that playing out in the deals that are getting done?”
2025-06-23 · Capital Allocators · Hugh MacArthur – Private Equity's Challenges and Opportunities (EP.453) · IDENTIFIED FROM THE TRANSCRIPT · source
“Four years, and we've been through the COVID bump and the inflation thing and all these other things. If I'm an LP and I'm looking at your marks, how do I know those marks are accurate? How do I know you can sell that business from that? We've been through a whole bunch of things and I know you think it's worth X and I know you think you'll make it right and you'll sell it for that in the future, but I don't really know what that's worth. So if you're up raising a new fund and you haven't been returning a lot of capital to your LPs, there are a lot of challenges out there.”
2025-06-23 · Capital Allocators · Hugh MacArthur – Private Equity's Challenges and Opportunities (EP.453) · IDENTIFIED FROM THE TRANSCRIPT · source
“Maximum return. We don't want a fourth year of high illiquidity in this asset class because remember, there's still a trillion dollars of dry powder out there for buyouts, which means if the GP picks up the phone and says, I need your check, the LPs are writing the check, and yet they haven't seen much money back in the last four or five years. That's a real crisis. The LP community is saying, we'd like to see the cash come back even if it's at a lower return than you know you can get in three to four years. There's a fascinating dialogue going on right now. And we're starting to see for the first time things being sold at numbers that are probably below the targets where the GPs wanted to sell the asset at because they know at some point in time they're going to be back out on the road raising their flagship buyout fund. And if they haven't returned capital in a whole bunch of years, it's going to be tough to do that from the same LPs. And you've got another effect that makes it difficult to raise money, which is that if I haven't been writing you lots of checks for the last three or four”
2025-06-23 · Capital Allocators · Hugh MacArthur – Private Equity's Challenges and Opportunities (EP.453) · IDENTIFIED FROM THE TRANSCRIPT · source
“There's a couple of things doing that. One of them is mindset. It's important to understand that. One thing that many GPs learned coming out of the GFC is that if you just held on to a business long enough, life would be fine and you'd be able to sell it for the number that you wanted to sell it for. And that was true. There was a lot of concern. Maybe we're not going to make money on these businesses and we should just give the keys to the banks. The GPs that held on to the assets for as long as they needed to, five years, six years, seven years found that when the economy ameliorated, when interest rates ameliorated, they could sell and earn a reasonable return. When you thought you were going to lose your money, if you get a 10 or 12% IRR on it, that's actually a home run. So the mentality of the entire industry is let's just hold it until we get it fixed and it's right. That can be great for any individual firm, but when the entire industry does it, it causes a massive liquidity crisis. And that's what we're seeing right now. The LP community is getting louder and louder with a voice saying, we don't care about maximum.”
2025-06-23 · Capital Allocators · Hugh MacArthur – Private Equity's Challenges and Opportunities (EP.453) · IDENTIFIED FROM THE TRANSCRIPT · source
“You look at that from a GP lens and the different avenues they have to sell businesses, IPO strategic, sponsor to sponsor, what's preventing this volume of the last few years from accelerating? We can take out the tariffs and uncertainty.”
2025-06-23 · Capital Allocators · Hugh MacArthur – Private Equity's Challenges and Opportunities (EP.453) · IDENTIFIED FROM THE TRANSCRIPT · source
“Resiliency of this industry is going to come through in the end and that life will be fine, but the magnitude of this challenge is underappreciated because we're not in some other larger crisis that causes you to focus on it.”
2025-06-23 · Capital Allocators · Hugh MacArthur – Private Equity's Challenges and Opportunities (EP.453) · IDENTIFIED FROM THE TRANSCRIPT · source
“Out portfolios worth about $3.6 trillion, and about half of those companies have been held for at least five years. Five years of sell time in the private equity world. We're talking about 15,000 companies and $1.8 trillion worth of value that LPs are expecting to see back really, really soon. For comparison, the entire TEV of the global buyout world last year was $600 billion. So that's three years of pretty healthy deal making just to clear that if that was all that you ever did. And of course, that's not all of what we're going to do. So we're talking about a five-plus year problem as the GFC was in order to process all of this liquidity. This is not going to go away in 2025 or 2026. It's going to be continued pressure on the institutional LPs for liquidity over the course of the next several years. And I have no doubt having been in the industry for 30 years and having the calls that the private equity business is over again and again and again be wrong that there is”
2025-06-23 · Capital Allocators · Hugh MacArthur – Private Equity's Challenges and Opportunities (EP.453) · IDENTIFIED FROM THE TRANSCRIPT · source
“Oh my gosh, are we going to have four years in a row of horrible distribution? By the way, we've never seen four years of these types of returns per net asset value dollar for LP. So this is an unprecedented liquidity squeeze in the industry. And last year already, we saw a 25% decline in fundraising for buyouts as a result. This year, we're seeing a continuation of that. There was no fund in the buyout world in the first quarter that closed that was above $5 billion, which is the first time I could remember that happening in quite a period of time. This liquidity issue is in many ways unprecedented. In many ways, it's not fully appreciated because we're not in some global recession. There aren't things that are fundamentally broken in the global economy. So it's shocking that we're in a situation that's as serious as this is. And to give you a sense of the magnitude of the situation and what it's going to take to solve it, there are about 30,000 companies right now that are being held globally in by”
2025-06-23 · Capital Allocators · Hugh MacArthur – Private Equity's Challenges and Opportunities (EP.453) · IDENTIFIED FROM THE TRANSCRIPT · source
“It's scary. It's sounding the alarm on this. I'm very surprised that there's not more discussion going on about how serious a situat 2008, we're entering the worst recession for 75 years. We're not even in a recession and we're hitting a number that is correlating to the worst recession in 75 years to make matters more challenging, the number that I just threw out at you, 11% for 2024. In 2023, that number was 12%. But it wasn't much better in terms of liquidity a year earlier. The number the year before that in 2022 was 15%, which again is not much better. And everybody was thinking, oh boy. 2025 is finally going to be the year of lots of liquidity coming back. Investment banks are telling us their pipelines were full. GPs were optimistic. We were at incredible levels of activity in January. And then this word tariff started to come out in February. And that caused a tremendous amount of uncertainty. And the deal markets have slowed and gotten slower and slower since then. Right now we're kind of in a pause and people are saying.”
2025-06-23 · Capital Allocators · Hugh MacArthur – Private Equity's Challenges and Opportunities (EP.453) · IDENTIFIED FROM THE TRANSCRIPT · source
“Love to dive into some of these topics. And the one certainly in institutional market, you hear the most about now is this liquidity bottleneck. What is the data telling you about where we are and where we might be going from here?”
2025-06-23 · Capital Allocators · Hugh MacArthur – Private Equity's Challenges and Opportunities (EP.453) · IDENTIFIED FROM THE TRANSCRIPT · source
“Hard to raise the right amount of capital to do what you want to do to get your deals that should be your deals and to get talent excited about working for you. The interesting thing about those three things, Ted, is that if you fail at one of them, you fail at all of them.”
2025-06-23 · Capital Allocators · Hugh MacArthur – Private Equity's Challenges and Opportunities (EP.453) · IDENTIFIED FROM THE TRANSCRIPT · source
“The sources of capital. So, what's your plan? Are you going to be an alpha generator? Do you have a differentiated way of doing things that you could build moats around that other people are not going to be able to penetrate? And do you feel confident about that? Great. Then you can build a plan going to try and do that. Are you going to be a scale player? Are you going to be a consolidator? Are you going to buy up other GPs because you're public and you realize that in the public world, your growth and fee-bearing AUM is what the markets are looking at and you need to do that organically and inorganically. So bigger is better and you want to be a consolidator in the market? Or are you somewhere in the middle and you've realized that your highest and best strategy might be to be part of someone else's story? Should you consider selling to somebody else who's going to be bigger over time? I'm simplifying, but some mix of alpha generation, scale, et cetera, is becoming more and more important in the industry. And if you don't know how you play and how that's relevant, it's going to be really”
2025-06-23 · Capital Allocators · Hugh MacArthur – Private Equity's Challenges and Opportunities (EP.453) · IDENTIFIED FROM THE TRANSCRIPT · source