PSP Invesco Global Listed Private Equity ETF : Bullish and Bearish Analyst Opinions

The speaker directly criticizes private equity's "volatility smoothing," calling it "lying" or "making up numbers," where reported prices are not tradable, especially during crises (e.g., Q1 2020). This accounting practice creates a misleading profile of high returns with low, smoothed volatility, which does not reflect true economic risk or liquidity constraints for investors. The traditional, illiquid private equity structure is unattractive because it obscures true risk and denies investors liquidity, especially compared to liquid public market alternatives that can replicate its factor exposures. If private equity funds can consistently generate alpha beyond replicable factor tilts and justify their illiquidity premium, the avoidance could be costly.

The Invesco Global Private Equity ETF has drawn down 34% from its 2021 peak, presenting an attractive valuation to begin scaling into a long position.

Pento notes that negative real interest rates allowed entities like Blackstone to borrow at 3% and buy "thousands upon thousands of single family homes." He describes the current environment as a "credit bubble" where trillions were thrown into private equity and private credit. The Private Equity (PSP) and Private Credit models rely on cheap leverage and rising asset values. As rates normalize and the Fed potentially shrinks the balance sheet (removing liquidity), the cost of debt rises while asset values (homes/companies) fall, squeezing these firms from both ends. SHORT Private Equity proxies (like Blackstone or the PSP ETF) as the "unwind" trade of the cheap money era. Private credit markets remain opaque, allowing these firms to delay marking down assets longer than public markets.

In Private Credit, "lending standards deteriorate," "due diligence standards deteriorate," and there is "frothiness." He specifically flags "retail investors wanting liquidity from what are fundamentally illiquid products." The sector is vulnerable to a liquidity mismatch. If the economy slows, the combination of loose lending standards and retail investors rushing for the exits (in liquid wrappers holding illiquid assets) creates a systemic squeeze for BDCs and Private Credit ETFs. AVOID retail-accessible private credit vehicles due to liquidity mismatch risks. The economy continues "chugging along" without recession, keeping default rates low and yields attractive.

Rowan warns of a coming "shakeout" in the private credit industry, specifically citing defaults on loans to software companies. He notes this will not be a short-term event. As the "easy money" era ends and defaults rise, the private credit sector (which has grown to trillions) faces a structural stress test. Firms with poor underwriting standards will suffer. AVOID. The sector faces a 12-24 month period of pain and consolidation. Top-tier managers (like Apollo/Blackstone) may actually gain market share during the shakeout, making a blanket short dangerous.

Danny Moses warns of "concern when it comes to private credit... the opacity there." Jamie Dimon warns of "complacency" and inflation. If rates stay higher for longer (due to inflationary war spending/oil), the floating rate debt in Private Credit portfolios may default. The "opacity" means the market doesn't know who is holding the bad bags until it breaks. WATCH / AVOID. No immediate trigger, but a clear macro warning to reduce exposure to opaque leverage. Soft landing scenario where defaults remain low.

The private equity industry is facing a "Darwinian" shakeout due to weak payouts, a $3.8 trillion backlog of unsold companies, longer holding periods, and tough fundraising. These systemic headwinds will negatively impact the performance and valuations of publicly traded private equity firms, which are represented by ETFs like PSP. The "extinction" of smaller funds points to broad industry distress. The post implies a bearish outlook for the entire private equity sector. Shorting an ETF like PSP is a direct way to express this view, betting that these negative trends will depress the share prices of its holdings. A sudden drop in interest rates could ease fundraising and exit conditions, improving PE firm performance. A broader market rally could lift all asset classes, including PE. Larger, more established firms (which dominate the ETF) may prove resilient and even benefit from the shakeout.

CalPERS has decided to "reenter" Venture Capital, targeting "10%, maybe up to 15% of the portfolio" focused on emerging managers and venture. Institutional re-entry into VC signals a belief that valuations have reset and the vintage years ahead (2024-2026) will be strong. While retail cannot easily buy VC funds, they can buy Listed Private Equity (PSP) or high-growth tech proxies (QQQ) to front-run this capital deployment. LONG Innovation/Growth proxies. Higher-for-longer interest rates compressing valuation multiples for non-profitable tech.

He criticizes Private Equity for paying multiples higher than public markets for small companies and using excessive leverage. He argues that the illiquidity of PE is masking losses ("they can't sell it") and that secondary funds are a "gimmick." When the credit cycle turns, the leverage in these portfolios will cause significant impairments. AVOID Private Equity and Private Credit exposure. Private markets continue to attract capital flows, keeping valuations artificially supported.