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Will the Music Stop for Private Equity? By Spencer Jakab

Copper, "the only metal with a PhD in economics" isn't forecasting a boom this time. Its record spike Tuesday was the result of announced tariffs. They could have wide-ranging impact , but stocks took the news in stride and futures point to a flat open Wednesday .

***

Every disaster seems to have its famous last words. For the global financial crisis, they were from Citigroup CEO Chuck Prince, 18 years ago today, talking about the buyout boom that was about to implode.

"When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you've got to get up and dance. We're still dancing."

This is a good time for ordinary investors to remember how Wall Street danced past the graveyard with other people's money when signs of trouble were mounting. Today, big firms are pushing to get a piece of Americans' retirement savings just as deals done a few years ago when money was cheap aren't paying out enough cash to existing investors.

If skeptics are right about the private-asset boom of the past several years then a quote you're likely to see in postmortems is from Ben Meng. He was running the giant California public retirement fund Calpers in 2019.

"We need private equity, we need more of it, and we need it now," he said .

Endowment and pension managers not only have to hit tough targets in terms of returns but are rewarded for portfolios that don't seem volatile . Enter high-fee, alternative investments like private equity and private credit.

Their prices mainly change when fund managers say they do . Alternatives, which include hedge funds, make up more than half of many large endowment portfolios and around a third of large pension funds.

Meng's call for more private equity came just as deal flow was about to oblige. It nearly doubled in two years to a record $3.1 trillion globally in 2021 after interest rates fell to zero. That translated to more expensive, riskier deals.

The median buyout multiple including debt was 6.5 times Ebitda, a proxy for a company's cash flow, in 2009, according to McKinsey . That multiple hit 10 times in 2019 and 12 times by 2022.

With interest rates higher today, some buyout targets are struggling to service debts. Private lenders that backed them have quietly restructured loans.

Less money is flowing back to investors even from sound deals as tens of thousands of unsold companies pile up. That's especially inconvenient for Ivy League colleges suddenly scrambling to raise cash . They probably wish they had bought boring, easy-to-sell stocks and bonds instead. Veteran investment consultant Richard Ennis reckons their returns also would have been higher given alternatives' high costs.

Wall Street usually gets what it wants, so expect to see "alts" on your retirement menu, including target-date funds used as a default for most 401(k) plans.

They might have been good enough for Harvard and Yale, but private equity and credit could give people who don't read the fine print an expensive education.

Stocks I'm Watching

Freeport-McMoRan : The miner's shares rallied Tuesday after President Trump said he would impose 50% duties on copper imports, sending prices for the metal soaring . Freeport shares rose 2% in premarket trading Wednesday.

Glencore , Anglo American , Zijin Mining Group , Jiangxi Copper : Shares of overseas copper producers fell after Trump's tariff threats.

Novo Nordisk , Sanofi , AstraZeneca : Trump threatened 200% tariffs on pharmaceutical imports Tuesday, but said they wouldn't go into effect for a year and a half. Shares of overseas drugmakers edged lower in Europe, while U.S. peers such as Pfizer and Eli Lilly were little changed.

WPP : Shares in the advertising conglomerate tumbled 17% in London after it said clients were pulling back on spending. Its U.S. rivals, Omnicom and Interpublic , which are merging, fell premarket.

UniCredit : The Italian lender converted part of its position in Germany's Commerzbank into stock, doubling its equity stake as it pursues a merger. Shares of both banks climbed.

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July 09, 2025 06:46 ET (10:46 GMT)

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