Great read and I agree with your take. I’m curious though, what do you think should replace PE as the career path young, smart, risk-averse people take?
Data companies (e.g. surge, mercor, scale, handshake) are spinning up standardized postgrad programs similar to banking; alumni after a 1-2 year stint go to AI companies bc data collection and labeling is core to their business models.
Overly reductive take. I have never worked at a firm where the associate role is 90% modeling. If an associate finds themselves in one of those seats they should lateral immediately. Boomers continue to retire and need liquidity. Plenty of AI startups will eventually need non-VC liquidity. There are still plenty of ambitious 22 year olds for who investing is an appropriate career path. But, it's an exciting time to be in AI. I would imagine it's not that dissimilar to being 22 during the dot com bubble. I don't know that we'll ever see a return to the 2010 - 2022 PE bull market, but once the 2021-22 vintage clears out and zombie funds fold, think you'll see a much healthier return to form. PE professionals just need to be nimble.
There are two turkeys in this piece, and only one of them knows it is a turkey. The junior banker is the obvious one: fed every day on the promise that the IB-to-PE path is a capped-downside, high-status trade, until the two conditions that capped the downside — money keeps flowing in, and juniors keep doing the tedious Excel work — both break in the same year. But the limited partner is the second turkey, and the more interesting one. Yale's endowment was fed for thirty years on a rising tide that was not skill. It was a 35-year decline in interest rates, which the industry relabeled as alpha and charged carry on. The $2.5 billion secondary sale at a discount is the institution itself discovering that the farmer changed the schedule — and that the marks on the remaining assets were never prices, only the last feeding time written down. That is what makes the continuation fund the most honest paragraph in the piece, and the most damning. When the market will not buy your asset at your price, you buy it from yourself. The hot potato is not a solution; it is an admission that price discovery has been replaced by self-dealing, and it works only as long as the next fund can be raised to catch the potato. The AI angle completes the trap from the other side. Raines says the edge was never in the modeling — banking's edge is sales, PE's edge was falling rates — but the junior's entire economic function was the modeling, and Claude Code now does it better than the human. So the trade loses both of its edges at once: the rate beta that made the carry valuable, and the modeling scarcity that made the junior employable. The carry was a call option on falling rates; the analyst seat was a call option on modeling scarcity. Both expired in the same year, and the prestige is the lagging indicator that tells the next class of finance majors to keep applying anyway. Which leaves the question Nadiem asked, and Raines's answer, under more pressure than the piece admits. 'Build the AI, deploy the AI, invest in the AI' is the new prestige path — and by the piece's own logic, prestige is an indicator of where the world went, not where it is going. If the AI buildout's own arithmetic is the same kind of feeding schedule — trillions spent against hundreds of billions earned, with the revenue arriving later, maybe — is 'invest in the AI' the escape from the prestige trap, or just the next turkey feeder with a better logo?
I agree with your take on PE. I think the rise in rates also should apply to the equity market. Equities are in the long run worth the cash they will send back to shareholders. If rates go from 2 to 5 on the ten year, that has a huge effect on the present value of a given 30 year projection of cash flows, holding everything else equal. It's math.
tl:dr ‘past performance is not indicative of future results’
Great read and I agree with your take. I’m curious though, what do you think should replace PE as the career path young, smart, risk-averse people take?
Build the AI, deploy the AI, invest in the AI, or figure out how to use it to spin up your own business and win, IMO.
i come from a consulting background so deploy the AI is my bet for myself, lets see how it goes 🫡
Data companies (e.g. surge, mercor, scale, handshake) are spinning up standardized postgrad programs similar to banking; alumni after a 1-2 year stint go to AI companies bc data collection and labeling is core to their business models.
Overly reductive take. I have never worked at a firm where the associate role is 90% modeling. If an associate finds themselves in one of those seats they should lateral immediately. Boomers continue to retire and need liquidity. Plenty of AI startups will eventually need non-VC liquidity. There are still plenty of ambitious 22 year olds for who investing is an appropriate career path. But, it's an exciting time to be in AI. I would imagine it's not that dissimilar to being 22 during the dot com bubble. I don't know that we'll ever see a return to the 2010 - 2022 PE bull market, but once the 2021-22 vintage clears out and zombie funds fold, think you'll see a much healthier return to form. PE professionals just need to be nimble.
There are two turkeys in this piece, and only one of them knows it is a turkey. The junior banker is the obvious one: fed every day on the promise that the IB-to-PE path is a capped-downside, high-status trade, until the two conditions that capped the downside — money keeps flowing in, and juniors keep doing the tedious Excel work — both break in the same year. But the limited partner is the second turkey, and the more interesting one. Yale's endowment was fed for thirty years on a rising tide that was not skill. It was a 35-year decline in interest rates, which the industry relabeled as alpha and charged carry on. The $2.5 billion secondary sale at a discount is the institution itself discovering that the farmer changed the schedule — and that the marks on the remaining assets were never prices, only the last feeding time written down. That is what makes the continuation fund the most honest paragraph in the piece, and the most damning. When the market will not buy your asset at your price, you buy it from yourself. The hot potato is not a solution; it is an admission that price discovery has been replaced by self-dealing, and it works only as long as the next fund can be raised to catch the potato. The AI angle completes the trap from the other side. Raines says the edge was never in the modeling — banking's edge is sales, PE's edge was falling rates — but the junior's entire economic function was the modeling, and Claude Code now does it better than the human. So the trade loses both of its edges at once: the rate beta that made the carry valuable, and the modeling scarcity that made the junior employable. The carry was a call option on falling rates; the analyst seat was a call option on modeling scarcity. Both expired in the same year, and the prestige is the lagging indicator that tells the next class of finance majors to keep applying anyway. Which leaves the question Nadiem asked, and Raines's answer, under more pressure than the piece admits. 'Build the AI, deploy the AI, invest in the AI' is the new prestige path — and by the piece's own logic, prestige is an indicator of where the world went, not where it is going. If the AI buildout's own arithmetic is the same kind of feeding schedule — trillions spent against hundreds of billions earned, with the revenue arriving later, maybe — is 'invest in the AI' the escape from the prestige trap, or just the next turkey feeder with a better logo?
I agree with your take on PE. I think the rise in rates also should apply to the equity market. Equities are in the long run worth the cash they will send back to shareholders. If rates go from 2 to 5 on the ten year, that has a huge effect on the present value of a given 30 year projection of cash flows, holding everything else equal. It's math.
Jack: outstanding summary of the world. Well done. Tom (Wit & Wisdom)
Still very intrigued by what Erebor is doing - though how many startups are banking w/ them?
Sell patagonia