4 ms·

Not sure that follows. If (big "if") interest rates go up a lot, then a lot of investors might not reach for VC or PE to enhance their returns at even close to

Not sure that follows. If (big "if") interest rates go up a lot, then a lot of investors might not reach for VC or PE to enhance their returns at even close to current allocation (and growth would be heavily discounted). Look at how the telecoms industry looks now compared to the heights of 2003 or so.

marcosdumay 4y ago
This. What happened in 2000 was that interest rates got up and money became scarcer, so there was nobody willing to put any money into more risky investments like VCs. Today we are in a completely different realm of money availability, but it is becoming scarcer again.
DebtDeflation 4y ago
>If (big "if") interest rates go up a lot It's not a "big if" at all. Zero nominal rates and negative real rates are an anomaly in economic history over the last few centuries. Rates are headed higher, much higher. The Fed has been holding off in the hope that inflation would be "transitory" but it's now been a year and a half of >7% CPI increases with no sign of abating.
- RandomLensman 4y ago
  Agreed on the long history. I'd still argue there is sizable "if" as one way to reduce government debt would be to use inflation (just like in the 1950s). So while rates will go up, the question is how much they will go up and if the level they reach will be high enough to cause substantial portfolio reallocations.
  - weatherlite 4y ago
    Agreed. It's not only government debt - everyone is indebted (people, businesses) at a historical high. How much can you raise interest rate without crushing them I don't know. On the other hand how much can you let inflation go up without crushing the working class and emerging markets indebted in USD? It's an impossible situation.
- deleted 4y ago
  [deleted]
refurb 4y ago
If interest rates go up and inflation stays high then real returns stay low. I don’t see VC/PE investment dropping as a percent of investments since it’s a unique high risk/high return investment than 5% bonds can’t match.
- RandomLensman 4y ago
  Quite a few large institutional investors have surprisingly low nominal target returns, so 4-5% can be enough (in mainland Europe, for example)
  - refurb 4y ago
    If any fund has a nominal return target, then I’d question their abilities. Nominal means nothing.
- weatherlite 4y ago
  Beating 5% can become harder and harder when everyone is running away from risk, its not always rational if you're in a tech recession.

marcosdumay 4y ago

This. What happened in 2000 was that interest rates got up and money became scarcer, so there was nobody willing to put any money into more risky investments like VCs. Today we are in a completely different realm of money availability, but it is becoming scarcer again.

DebtDeflation 4y ago

>If (big "if") interest rates go up a lot It's not a "big if" at all. Zero nominal rates and negative real rates are an anomaly in economic history over the last few centuries. Rates are headed higher, much higher. The Fed has been holding off in the hope that inflation would be "transitory" but it's now been a year and a half of >7% CPI increases with no sign of abating.

RandomLensman 4y ago
Agreed on the long history. I'd still argue there is sizable "if" as one way to reduce government debt would be to use inflation (just like in the 1950s). So while rates will go up, the question is how much they will go up and if the level they reach will be high enough to cause substantial portfolio reallocations.
- weatherlite 4y ago
  Agreed. It's not only government debt - everyone is indebted (people, businesses) at a historical high. How much can you raise interest rate without crushing them I don't know. On the other hand how much can you let inflation go up without crushing the working class and emerging markets indebted in USD? It's an impossible situation.
deleted 4y ago
[deleted]

refurb 4y ago

If interest rates go up and inflation stays high then real returns stay low. I don’t see VC/PE investment dropping as a percent of investments since it’s a unique high risk/high return investment than 5% bonds can’t match.

RandomLensman 4y ago
Quite a few large institutional investors have surprisingly low nominal target returns, so 4-5% can be enough (in mainland Europe, for example)
- refurb 4y ago
  If any fund has a nominal return target, then I’d question their abilities. Nominal means nothing.
weatherlite 4y ago
Beating 5% can become harder and harder when everyone is running away from risk, its not always rational if you're in a tech recession.