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I think Adams Street Partners are spot on in this very thoughtful piece! · Rising interest rates are creating headwinds for buyout portfolios · Leverage reliant GP's returns are to be negatively impacted · GPs focusing on scaling via earnings growth are more likely to outperform · Sellers should rein in their valuation expectations What does this mean for PE market like #ASEAN where returns are inherently #growthdriven? Rather simplistically put, higher interests rates are levelling the playing field between Developed Markets (DM) and Emerging Markets (EM) The more returns need to rely on growth, the more regions or countries with strong GDP growth fundamentals become attractive. Granted there are many more nuances that come into play, but one could hardly argue that for the last decade+, low rates and generous leverage packages have supercharged returns in DMs. Unlevered EM businesses needed to grow earnings 3 to 4x faster than DM peers to just match the returns, quite a tall order even in booming economies. With a more "normalised" rate environment, portfolios would benefit from regionally diversified exposures to growth and we believe #ASEAN displays the most promise! #CollyerCapital #CCPL #LeveragedReturns #GrowthReturns #Buyout #interestrates https://lnkd.in/g9xDCjMY
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4moMy former professor Charles Calomiris once told me that ROE is basically a "leverage decision." Whereas ROA reveals a lot about asset selection. I'd imagine high-growth EM regions like ASEAN have plenty of businesses with killer ROA on offer. It's true that higher rates make leverage relatively less attractive, though still useful as long as the cost of equity remains higher than debt costs.