I’m trying something new, something I always wanted to do—collect interesting things and share them with the world. I’ve always done that in one way or another, but I’m being deliberate this time. I’m lucky that I grew up with the internet. I’ve always consumed random things for as long as I can remember. Whenever I wanted to consume something, I had a list of people whom I could rely on to supply the most interesting things on the internet. These are curators (not a fan of the word) who have the amazing ability to find hidden gems in the raging dumpster fire that is the interweb.
For all our lamentations about the internet becoming a public toilet like the one in Majestic bus stand, it still makes the collective knowledge of humanity accessible. You can build your own adventures and get lost in weird rabbit holes, and that’s awesome. The goal is to discover and share those weird rabbit holes. Let’s see if I can keep it up.
From the dumpster fire #1 | Private markets, Robinhood searching for home, Martin Scorsese, Indian village deities, Rupert Murdoch, cranky Charles Darwin and more.
In the money
Pooped party in the private markets
The defining trend in the financial markets in the last decade has been the rise of the private markets Private markets is a catchall term for private equity, private debt, venture capital, real estate, infrastructure, natural resources, and other investments. Of the private markets universe, private equity (PE), or leveraged buyouts, and venture capital (VC) are two of the largest asset classes. Global PE and VC AUM is about $6-7 trillion. In many ways, the public markets were a sideshow over the past decade and a half.
The low interest rates were a tailwind for the private markets at a time when large cash pools like pensions, endowments, sovereign wealth funds, family offices, and corporate treasuries grew ever more dominant. Having said that, it’s important not to overstate the impact of interest rates on the flows in private equity and venture capital. The private markets are the result of a confluence of other structural factors like post-2008 crisis regulations that curtailed bank lending, the growth of high-yield bond markets, companies staying private longer due to lighter regulations, and good old herd behavior among institutional investors.
Unlike other financial segments, the relationship between the demand for private equity asset class and the interest rate environment is not contemporaneous. This is partly due to constrained access to funds, long-dated holding periods, and illiquidity. In addition, investors entering and exiting the alternatives space is not exactly a spontaneous or isolated decision; it takes significant time and resources to develop the necessary knowledge and relationships. — When the Tailwind Stops: The Private Equity Industry in the New Interest Rate Environment Victoria Ivashina
Low rates did have an effect. They pushed large investors, like pensions and endowments, out on the risk curve, away from only equities and bonds. The trickle became a deluge. Like retail investors chasing performance, large investors like pensions and endowments increased their exposure to private equity and venture capital.
The rise in interest rates and the market crash in growthy market segments mean the good times are over for the private markets. Deal volumes in both primaries and secondaries have shrunk, discounts in secondaries have widened, exits have dwindled, and new fund raises have become difficult. Private equity is a leveraged asset class. As rates have risen, so have borrowing costs, which means returns have shrunk.
In this new world, private equity funds are resorting to some exotic tactics.
- They are borrowing money against the portfolio companies at exorbitant rates to return money to investors, and in the case of SoftBank, return money to themselves.
- PE funds are borrowing at 12%+ to prop up distressed portfolio companies.
- PE management companies are also borrowing against future fees to raise money for various purposes.
So, all this will end well, right?
It will, right?
If you observe the markets, it’s impossible to ignore private markets. Here are some good resources that give you an overview of the evolution of private markets.
Pieces I have written:
In the same vein, is it worth investing in venture capital funds? Nope. The median VC fund doesn’t outperform Nasdaq. So QQQ (Nasdaq ETF) and chill is maybe better for large institutional allocators
It’s become an article of faith that private equity is a magical investment that offers diversification benefits, increases returns, and reduces portfolio volatility. This has become something of a pet peeve of mine. If private equity is akin to leveraged small and micro-caps minus the daily stock prices, how is it diversifying anything?
Allison Schrager, a writer I’m a fanboy of published a takedown of this narrative that tickles my priors:
When economists account for the actual cash flows from private equity funds, the market Beta — the correlation between the private equity and the public market — for leveraged buyout funds is between 1 and 1.3, suggesting little diversification value from public markets. Private equity does provide higher returns, but that is because of the leverage and the equities selected by the manager. A 2020 research paper shows that taking on leverage and investing in value stocks can offer a similar return and risk profile — and offers more liquidity and much lower fees. Though the paper concedes that private equity fund managers may be skilled at asset selection, it also notes that their strategy can be “easily and cheaply mimicked.”
The narrative that private equity offers better returns than public markets at half the risk is a good example of how stories spread and why facts alone aren’t enough to debunk myths.
What happens to the private markets when rates rise? This report is really good. If you don’t want to read the entire report, I’ve read the entire thing, and you can just read this highlighted version.
Private equity—fixing everything since 1980
After fixing hospitals, nursing homes, local news, pawn shops, car washes, pet clinics, affordable housing, private equity is now fixing student housing. Private equity firms are jacking up rents and ensuring that only the rich students can afford campus housing. By doing so, they are teaching all the lazy, poor students from marginalized backgrounds the value of hard work. Nothing makes people want to be rich more than making them homeless. #PrivateEquityIsSavingTheWorld
It rode the pandemic-induced explosion in trading and then crashed as markets peaked in 2022.
To say that US brokerage Robinhood has had a tough couple of years would be an understatement. It started life in 2014 as the earliest zero-brokerage trading app. While it was popular among young users, it hit the mainstream in 2021 when people under lockdowns with stimmy checks were trading their pants off. It became the poster child of meme stock mania and the subject of conspiracy theories after it had to halt trading during the GameStop mania as it ran short of capital for clearing trades.
Things seem to have bottomed out, with the US markets bouncing back.
After millions in fines, lawsuits, congressional testimony, ill-timed crypto bets, and laying off over 1,000 people, it’s now trying to change its image. It now wants to be seen as a serious trading and investing app and not just an app for Warren Buffett-style long-term YOLO’ing. It launched individual retirement accounts (IRAs) early this year and offered to match all contributions by 1%. This is unique because matching contributions are only available in employee-sponsored retirement plans. Robinhood is funding these matches, provided that investors hold the matched funds for at least 5 years.
I don’t know how easy an image makeover is going to be. The brand’s association with gamblers and the reputational damage it suffered during the meme stock mania are just nuts. Much of it is unfair, but that’s social media for you. Check out the comments on this video. The comments aren’t representative of the entire Robinhood user base. But of the small cohort that’s extremely active, loud, and online, the negativity about the brand keeps mutating.
Drug Dealers, Inc.
This graphic is nuts. If you consider all Mexican drug creators and gangs as one entity, they are the fifth-biggest private-sector employer.
Policy proposal: legalize drugs and expand MNREGA for drug dealers.
Mr Prieto-Curiel started by using data on murders, arrests and other variables affecting gangs’ manpower to estimate total gang membership at 175,000. He then estimated how that number might change under different conditions. His work suggests that stopping gangs from hiring fresh recruits is the most effective way to shrink them and reduce violence.
If counted as a single organisation, Mexico’s gangs are the fifth-biggest private-sector employer in the country, after the likes of femsa, a sprawling company best known for its “Oxxo” convenience stores, and Walmart, an American supermarket chain.
Out of the money
I read three brilliant articles in the past couple of weeks.
Home is where the heart is
Homesick by Zarina Zabirsky in Orion Magazine is a haunting and beautiful piece about the people who call Chernobyl (Chornobyl) home. Zarina paints a poignant picture of the people of Chernobyl as they live their lives between two epochs—the aftermath of the explosion of the nuclear reactor and the Russian invasion of Ukraine. Despite the horrors of the past and the present, there are squatters who refuse to leave Chernobyl because it’s their home.
Luda and I walk the cement path to the Polissya hotel, named after the land here, derived from lis, forest. The forest is everywhere, a bizarre northern jungle. A lone Christmas glass ball hangs off the fir tree, swaying in the summer breeze. Time stands still, the worms of time gnawing on zona in silence. No, time doesn’t just stand still—it is obsolete here. April 26, 1986, stalled. I heard the same about February 24, 2022. Many in Ukraine said it never ended. In Chornobyl, in Pripyat, this interruption, this time glitch, is multilayered like everything else. An edge of a chemise sticking from underneath an old skirt. Space frozen in time; time imprinted in space. Frailty of being in the quietest place in the world.
“Forgive the mess. We have so much stuff here from our neighbors. Everyone had to flee because of this war, leave their houses,” says Valentyna. “The war . . . My childhood was stolen by the war, by the German Nazis.”
Valentyna, born in 1939, has clear memories of that war. She remembers bombs flying, howling through the pillow her mother pushed over her ears. The family fled and later returned to Chornobyl on a raft, sailing through the swamp and narrow Pripyat River.
“We had a great life, worked a lot, and sang and danced. Shared everything. Then, the nuclear explosion took my home again.”
Reading this piece left an unexplained sense of dread, longing, and gratitude in me.
Ashes to ashes, dust to dust
The second piece was a profile of the legendary Martin Scorsese by Zach Baron in GQ Magazine. It’s a beautiful piece about life, work, relationships, integrity, conformity, courage of convictions, and death. I’ve read this twice because there’s so much in here. I’m still processing this, and I have a many thoughts that I’ll share on my other blog. For now, I hope you read the entire article, because this is the stuff.
Scorsese knows something now about what happens when you get old. Getting older is a relentless process of paring down. Getting older is an exercise in letting go. Let go of anger: “I’m at the age now where you just—you’ll die.” Let go of fitting in, of going up to Rao’s with important people. Let go of other people’s opinions: “That doesn’t mean you don’t take advice and you don’t discuss and argue, but at a certain point you know what you want to do. And you have no choice.” Let go of the idea that you might someday visit the Acropolis. Let go of the idea that a movie needs a beginning, a middle, and an end: “Maybe the middle’s all around it, you know?”
All these people you’ve known and loved—“they suffered and struggled so much, and then life is over,” Scorsese said. “You get to the point of saying, ‘Well, what does it all mean?’ It doesn’t matter what it means. You have to live it. And if you choose not to live it, you choose not to live it, that’s up to you. But you are existing and you live with that existence. And so I think that has changed. And I don’t want to necessarily move the camera if I don’t want to anymore. I don’t. I don’t care. I just don’t care about that anymore.”
Chandan Gowda’s Another India came out a few weeks ago. I’m yet to read the book, but I read a few excerpts from it. Here’s a piece in The Wire about village deities. It’s just as wonderful as it is weird—it goes to show the diversity of religious practices in small towns and villages. Reading the article brought back fond memories of my childhood, when my grandfather used to carry me on his shoulder to the local village festival.
Siddalingaiah realized at a young age that the god-human relation was more intimate and humane among the lower castes and villagers. Usually, purohits are the intermediaries between the gods and the upper caste devotees. Only they are allowed inside the inner sanctum of a temple while the devotees offer their respects to the deity from a distance. In contrast, Siddalingaiah observed, the distance between the god and the devotees in folk religion is much less, if not non-existent. There is freedom to scold, criticize and even condemn gods. An elderly person once asked a deity on behalf of the people: “Where were you all these days? Have you forgotten us?” The goddess retorted, “Is yours the only village? I need to look after the seven worlds. Do you know how difficult my work is?” The elderly person persisted, “We work so hard. Don’t you see that?’ The goddess shot back, ‘Am I working any less?”
Other things of note
The big news in the media world last week was the retirement of Rupert Murdoch, aka geriatric Darth Vader. I don’t have anything to say that hasn’t already been said about the real-life dementor, but one thing that stood out to me is the staying power of Murdoch.
The media is brutal business, and don’t hold me to it, but by my guess, 60–70%+ of Murdoch contemporaries must have been out of business, but not the Austrian ghoul. Despite countless scandals, billions in settlements, and existential shifts in media business models, Murdoch is still standing tall. The reincarnation of Moloch sure knows how to surf the changing times.
I must bring you the sad news the media’s most reliable and fearless truth teller, Rupert Murdoch, is retiring from Fox and News Corp. This announcement has caused concern about how we will maintain media impartiality and exceptional journalistic standards when he’s gone.
Given Murdoch resembles an unwrapped mummy, I can only speculate his retirement is due to health concerns, but considering he’s 1,006 years old and presumed immortal, no one’s clear what’s going on. All I know is I want to pay tribute to him so consider this an early obituary.
Keith Rupert Murdoch was born in 1017 to loving necromancers Xagrim and Azezor Murdoch who stumbled across “dragon bones” (the idiots hadn’t heard of dinosaurs) and thought it would be cool if they soaked the fossils in human blood. One violent thunder storm later, a demonic reptilian thing named Keith emerged from a blinding lightning strike.
This week, the retirement of a media mogul made me realize that his empire helped to grow a movement that relies on populist hate of elites. On a network built by a billionaire.
Something of an oxymoron, don’t you think?
History of American newspapers and digital media
I wrote a long essay about the history of American media last week. Why? Because youth unemployment is a real problem in this country, I wanted to raise awareness.
Hear me out: Cybercrime is a really lucrative career option. I mean, you’ll be stealing money and defrauding people. If someone is gullible enough to fall for a scam, they deserve it. So, really, you are not stealing money as much as educating people—a noble cause. So all those moral scruples are unnecessary.
A gang in Bengaluru has been busted for defrauding people through WhatsApp and Telegram messages, promising high returns on small investments. The gang was involved in over 5,000 financial crimes, amounting to Rs 850 crore, across the country in the past two years. — TOI
Porn precedes innovation
Among the early books printed on a Gutenberg press was a 16th-century collection of sex positions based on the sonnets of the man considered the first pornographer, Aretino—a book banned by the pope. Each new medium followed a similar pattern of innovation, porn, and outrage. One of the first films shown commercially was The Kiss in 1900, distributed by Thomas Edison, which depicted 18 seconds of a couple nuzzling. — Wired
A good quote
“Life will not lengthen itself for a king’s command or a people’s favor. As it started out on its first day, so it will run, nowhere pausing or turning aside.”-Seneca
Life sucks sometimes
One substack I enjoy reading is Letters of Note, a newsletter about interesting readers from famous people. I came across this collection of excerpts from Charles Darwin’s letters and it’s too funny:
I am very tired, very stomachy & hate nearly the whole world. So good night, & take care of your digestion which means Brain.
Charles Darwin Letter to Thomas Huxley 10 Sep 1860
I am very poorly today & very stupid & hate everybody & everything.
Charles Darwin Letter to Charles Lyell 1 Oct 1861
That’s it. Now go pretend how smart you are.