How Institutions Juice IRR (Legally)

Good morning, ! This week we're covering how institutional investors use leverage to boost IRR, the components of the consumer price index, how more than half of unicorn value sits on the top 10 half, and the reasons to stay private longer.

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DATA DIVE

Leverage: IRR Multiplier

Private equity returns are often attributed to operational improvement. The data says otherwise.

Average unlevered IRRs of 15.1% increase to 23.0% with leverage — a 1.52x uplift. At the median, returns move from 9.0% to 13.0%, a 1.44x expansion. That’s not incremental. It’s structural.

In one return decomposition, business performance contributed 5 percentage points to IRR, and strategic transformation added 22 points, producing a 27% unlevered IRR. Add leverage, and total IRR rises to 71% — a 2.62x expansion .

The drivers remain familiar: EBITDA growth, multiple expansion, and debt paydown. But only one is mechanical. As debt amortizes, equity value increases — even if enterprise value stays flat. In a market defined by tighter exits and uncertain multiple expansion, capital structure discipline becomes the differentiator.

Operational excellence creates enterprise value. Leverage determines how much of it equity keeps. (More)

TREND TO WATCH

The AI Tide Lifts…10 Boats

US VC valuations are back in 2025 — and then some. Median pre-money valuations have surged past 2021 highs, fueled by AI hype, competitive rounds, and a modest rebound in deal activity. On paper, it feels like a reset rally.

But the cap table tells a different story.

According to PitchBook, 51.8% of total unicorn value now sits with the top 10 companies — the highest concentration in a decade. Meanwhile, 222 of 857 unicorns may have slipped below the $1B mark, and nearly 15% of rounds are down rounds, hovering near decade highs.

The takeaway: prices are rising, but breadth isn’t.

For PE allocators and crossover investors, this isn’t a broad-based recovery. It’s a barbell market — elite assets commanding premium multiples, while the long tail quietly reprices. Liquidity remains muted. Fundraising remains tight. The winners are winning bigger. (More)

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How Huli powered 20X growth with reliable embedded video

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Since then, Huli has achieved 20X growth in video consultations, supports 10,000+ active healthcare professionals across multiple countries, and has seen a 20% reduction in no-shows, even in low-bandwidth environments.

They chose an approach that could roll out quickly, scale reliably, and keep ongoing maintenance low, so the team could focus on growth and experience improvements.

Read the Huli Story

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LIQUIDITY CORNER

Patience Is a Strategy

Going public used to be the graduation ceremony. In 2026, it’s more like an elective.

According to the data, 70% of companies delay IPOs to preserve long-term growth focus, avoiding the tyranny of quarterly earnings. Meanwhile, 63% cite confidentiality and the same percentage say they have sufficient access to private capital — removing the urgency to tap public markets.

Add in regulatory burden (52%), culture preservation (44%), and a desire to control liquidity timing (39%), and the logic compounds. Structured secondaries, tender offers, and sponsor-led liquidity programs are replacing the traditional IPO clock.

Only 19% worry about valuation gaps, but that subtext matters.

Bottom line: Staying private isn’t defensive. It’s strategic capital management. For PE, that means longer hold periods — and more creative paths to liquidity. (More)

MACROVIEW

Macroeconomics: Inflation Is a Housing StoryMacroeconomics: Inflation Is a Housing Story

If you want to understand why Inflation feels worse than the headline, start with the math. Housing represents 44.2% of CPI . That’s not a narrative — it’s gravity. Headline CPI sits at 2.7% YoY. Disinflation, mission mostly accomplished. But Shelter is still running above trend, rising 0.4% MoM and 3.2% YoY. And unlike apparel or electronics, rent doesn’t go on clearance. This is the distinction between inflation and the price level. Rates slow. Levels stick.

For Private Equity, the takeaway is structural: housing is both the largest household expense and a durable inflation hedge. Over the past decade, home prices have doubled and materially outpaced CPI.

Political scrutiny may intensify around Institutional Ownership, but until supply elasticity improves, housing remains the system’s anchor — and capital will continue to flow accordingly. (More)

COMPLIANCE CORNER

AML Compliance in Flux: Preparing for the Next Wave of Regulatory Expectations

The AML landscape for U.S. private equity firms is at a turning point. FinCEN's 2024 final rule extended Bank Secrecy Act (BSA) AML obligations to many private fund managers, requiring comprehensive AML programs, ongoing investor due diligence, suspicious activity reporting, and rigorous recordkeeping. Though the compliance deadline shifted from January 1, 2026, to 2028 amid regulatory reconsideration, enforcement agencies have intensified AML scrutiny, making private equity firms clear supervisory targets.

Why it matters: The deadline delay does not mean preparation can wait. Regulators including the SEC, DOJ, and FinCEN have increased coordinated enforcement, demanding demonstrable program effectiveness beyond written policies.. Enforcement now targets "shadow banking" intermediaries like private equity, investment advisers, and fintechs, broadening the risk profile.

Implications: Waiting risks falling behind. Firms must build or refine AML frameworks with documented risk assessments, enhanced investor due diligence, integrated sanctions monitoring, and formal suspicious activity reporting. Designate compliance leadership and establish governance for effective AML controls.

Bottom line: Heightened regulatory expectations and enforcement risks demand early, sustained AML program development, and investment in technology and personnel. Prepare now to avoid costly enforcement actions and protect your firm's reputation in a tightening AML environment. (More)

"You'll never do a whole lot unless you're brave enough to try."

Dolly Parton