Markets with Bertie: The perils of private equity and the elusive perfect match

The fiftieth birthday of Bertie’s ex-colleague turned into a reunion of sorts. At the bar, Bertie spotted his old friend Venkat from private equity, wearing a strangely meditative look while the rest of the middle-aged crowd tried to sync their ‘no.no.no.no’ with Selena Gomez. Being a teetotaller, it wasn’t a drunken stupor, and Bertie decided to find out what was going on.

“Hey, Venkat!” he started. “Some great exits this year, ha? Somebody’s going to be rolling in carry.” Venkat smiled weakly and nodded.

“Then why so serious?” Bertie pressed.

“What is India’s cost of capital right now, you think?” Venkat asked. Bertie knew Venkat to be a nerd, but even this was unexpected. Such questions never crossed Bertie’s simple mind, so he strained to recall the formula for the Weighted Average Cost of Capital.

“It’s well into double digits!” Venkat spared him the agony. “And you know what current valuations are implying? Mid-single digits. That gap has never been so wide.”

“What are you getting at, Venkat?” Bertie struggled to follow.

“Exits are fine, my friend, but where do I deploy the money? The IRRs just don’t make sense anymore.”

The source of Venkat’s gloom finally dawned on Bertie, and to cheer him up, he said, “Go with the flow, man, literally and figuratively.” He was quite pleased with his wordplay.

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“That’s the issue na, Bert. You public equity guys are in situationships with stocks; here today, gone tomorrow. With the flow, as you say. We date them, we marry them and so we think of ten years and more, and it’s really hard to find a good match right now.” Venkat returned to his brooding just as the DJ played an Arijit love ballad.

Best way to learn

A week before the Global Fintech Fest (GFF) in Mumbai, Bertie found himself pulled into different ‘meet-up’ chat groups. He was surprised by the number of fintech professionals from his school, college, and MBA batches, all seemingly descending on Bandra Kurla Complex (BKC) for the three-day event. Dreading the inevitable traffic chaos, Bertie worked from home for those days but couldn’t resist joining one of the post-event get-togethers.

Other than scanning the QR code at his roadside chaiwallah, Bertie knew little about fintech, and he admitted this to one of his batchmates. “Maybe I should attend the GFF next year,” he mused.

“No use!” his batchmate shot back. “It’s just a place to be seen at. Nothing of substance happens there. It’s the Cannes of fintech,” he laughed, “and the queues make Disneyland seem like a breeze.”

“So, how do I learn more about fintech?” Bertie persisted.

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His friend thought for a moment and said, “Invest in a few fintech start-ups. A man learns best when he loses money.” Both laughed uproariously.

Race to the bottom

Every year, the global billionaires list is eagerly awaited. In India, there’s much fanfare around newly minted billionaires, followed by op-eds celebrating the vibrancy of the markets and capitalism. In China, however, the billionaire list—especially its top spot—is dreaded. There’s an unspoken rule among the business elite: rise too fast, too soon, and it’s only a matter of time before you’re cut down to size.

‘Common prosperity’ may sound like just another slogan, but in China, it’s pursued zealously—especially at the top of the wealth pyramid.

Bertie wasn’t surprised when he read a conspiracy theory about one globally renowned Chinese company deliberately low-balling its guidance to avoid having its founder top the billionaire list. The stock promptly dropped 30%, displacing the founder from the top spot. The former second-biggest billionaire now found himself in the spotlight, and analysts were debating whether they should expect similarly tepid guidance from his company.

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Bertie couldn’t help but note the irony. This was happening in a country whose founding father of capitalism famously said, “To get rich is glorious.”