Time Is the Alpha: Compounding, Tech Deals, and Distribution Pressure

Good morning, ! This week we're covering the rule of 72 and compounding as its own asset class, global tech buyout deals, NPS in diligence, and global buyout distributions drought. 

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DATA DIVE

Compounding Is the Most Underrated Asset Class

Stat: A $100,000 investment growing at 7.5% annually becomes roughly $900,000 over 30 years. Wait 10 years to start, and the same investment grows to only about $340,000. Wait 20 years, and the outcome falls to roughly $180,000.

Context: Investors spend enormous amounts of time debating asset allocation, sector selection, and market timing. The data suggests they may be focused on the wrong variable. At 7.5%, capital doubles approximately every 9.6 years, meaning each decade of delay effectively eliminates an entire compounding cycle. The difference between ordinary and extraordinary wealth creation is often not what investors own, but how long they own it.

Strategic Takeaway: Private equity's greatest advantage may not be leverage, operational improvement, or financial engineering. It may be forced patience. While public markets encourage constant activity, private markets naturally extend investment horizons, allowing compounding to work uninterrupted. For GPs and LPs alike, the lesson is simple: the biggest wealth destroyer is not volatility. It is shortening the runway. In investing, time is not just money. It is the asset that makes every other asset more valuable. (Read more)

TREND TO WATCH

The AI Deal Drought Is Over. The Mega Buyout Is Back.

Global technology buyout activity spent most of the past year in a holding pattern. Deal value totaled just $34B in Q1 and $33B in Q2 before exploding to roughly $118B in Q3. Even after moderating to $65B in Q4, the second half of the year accounted for the overwhelming majority of technology buyout value.

The obvious question is whether this was a one off spike or the start of a broader reopening. The sharp decline to $20B in Q1 2026 and $12B in Q2 suggests sponsors are becoming more selective again. Large technology transactions remain possible, but they are increasingly concentrated in a handful of assets with clear AI exposure, durable growth, or mission critical software characteristics.

What matters is not the volume. It is the willingness of sponsors to write very large checks when conviction exists.

Bottom line: Technology buyouts are becoming a barbell market. Capital is flowing aggressively toward a small group of premium assets while everything else waits longer for liquidity. For PE firms, sourcing differentiated technology platforms may matter more than ever because the market is rewarding quality far more than quantity. (More)

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DILIGENCE CORNER BY 150 DILIGENCE

The One Question That Predicts Growth

One of the most overlooked diligence questions is also one of the simplest: Would customers actually recommend this company?

The Net Promoter Score, or NPS, measures customer loyalty by subtracting the percentage of detractors from promoters. In the example above, 50% promoters less 20% detractors produces a 30% NPS. But the score itself is only the starting point.

For private equity investors, NPS can reveal whether growth is being purchased through sales and marketing spend or earned through genuine customer advocacy. Bain research found that loyalty leaders often grow more than twice as fast as competitors, while companies such as Charles Schwab, Rackspace, and American Express used NPS systems to improve retention, reduce acquisition costs, and strengthen profitability.

The key diligence insight: focus less on the score and more on the underlying feedback. A company with a disciplined process for identifying detractors, fixing root causes, and converting customers into promoters may possess a more durable competitive advantage than its financial statements initially suggest.

Customer loyalty is not a soft metric. It is often an early indicator of future cash flow resilience. (More)

LIQUIDITY CORNER

Private Equity's Distribution Drought

Private equity's liquidity problem isn't a lack of exits—it's a lack of cash making its way back to investors.

According to Bain, distributions as a percentage of NAV remained at just 14% in 2025, marking the fourth consecutive year below the 15% threshold and one of the weakest periods for LP cash generation in decades. Meanwhile, sponsors are holding assets for roughly seven years and sitting on a record $3.8T of unrealized value across approximately 32,000 portfolio companies.

The implications are becoming increasingly visible. LPs have less capital to recycle into new commitments, fundraising remains highly concentrated among top-performing managers, and firms that cannot generate DPI are finding it increasingly difficult to raise successor funds.

Exit activity may be recovering, but private equity's capital flywheel is still moving well below its normal speed. Until distributions rebound, liquidity will remain the industry's biggest constraint. (More)

MACROVIEW

Ceasefire Calms Markets, but Hormuz Risks Remain

The June 17 U.S.-Iran ceasefire has significantly reduced fears of a major global energy shock, sending oil prices sharply lower from conflict-driven highs above $110 per barrel. Markets are increasingly pricing out the risk of a prolonged disruption in the Strait of Hormuz, the critical waterway that carries roughly 20% of global oil supply.

However, normalization remains incomplete. Shipping traffic and export volumes through the strait are still far below pre-war levels, while elevated insurance costs and geopolitical uncertainty continue to weigh on commercial activity. The postponement of follow-up negotiations highlights the fragility of the agreement. For now, the ceasefire has improved the inflation outlook and reduced recession risks, but energy markets remain highly sensitive to developments in the Gulf. (More)

"You are never too old to set another goal or to dream a new dream."

C.S. Lewis