PodcastThe Monetary Matters NetworkHigh Yield Harry

Is Private Equity Broken? High Yield Harry on Wall Street’s New Reality

AI is reshaping private-market investing, from automating research and diligence to increasing the value of judgment, relationships, and operating skills. Higher rates, sticky inflation, limited exits, and tighter liquidity are pressuring private equity, private credit, and software borrowers, while larger asset managers may gain share. Career paths are also shifting as private-credit seats potentially decline, quantitative firms and frontier AI labs attract talent, and investors reassess software exposure and longer-held private assets.

Private CreditInterest RatesInflationAI InfrastructureMarket LiquidityInvestment Strategy

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Key Takeaways

AI creates both an operating advantage and a credit risk for private markets: it can automate research, diligence, modeling, and memo building, while potentially disrupting software and business-services companies that represent roughly 20% to 35% of some private-credit portfolios. The risk is amplified by high rates, elevated multiples, pressured free cash flow, and limited exits.

The guest expects AI to reduce primarily executional analyst-to-VP work and potentially eliminate roughly 10% to 20% of private-credit seats, while increasing the value of judgment, relationships, sales, process management, and operating skills. Direct conversations with management remain important because human interaction can reveal conviction, overconfidence, showboating, and avoidance that AI-assisted diligence may miss.

Private-market capital is gravitating toward the largest asset managers because scale enables them to raise and deploy substantial capital and potentially act as lenders of last resort. That concentration is occurring as delayed exits, continuation vehicles, difficult fundraising, and limited paydowns increase illiquidity, with redemption requests at some private-credit funds reaching the teens despite 5% gates.

Higher rates are reshaping both private-equity ownership periods and credit underwriting: PE firms are extending beyond the traditional four- to six-year hold period, improving businesses, and relying more on dividend recaps and refinancing, while software-credit investors must scrutinize margins and EBITDA rather than rely on the low-rate CLO playbook. Major amend-and-extend or refinancing decisions are concentrated in 2027–2029.

The guest warns that leveraged software could look much worse three years from now because of weaker pricing power, add-on competition, higher R&D or token spending, and leverage of roughly seven times versus about five to 5.5 times for some comparable businesses. This concern supports reassessing or halting many software deals rather than complacently buying the dip.

TECHNOLOGY

AI Portfolio Risk — AI is expected to disrupt software, business-services, and tech-enabled-services companies representing roughly 20% to 35% of some private-credit portfolios. Four years of high rates, higher multiples, and a limited exit market have further pressured borrowers’ free cash flow.

“and then just general broader worries about the downside risk with the asset class, especially given the fact that we know AI is going to play a massive role in…”—

AI Finance Automation — AI is automating substantial parts of private-equity research and diligence, including memo building, source-finding, modeling, Excel work, and some expert-call processes. The guest expects these tools to accelerate investment workflows.

“But realistically like a lot of the heavy lifting on research, diligence, modeling, you know, developing memorandums is all done and I think that frees you up to like do…”—

Finance Roles — AI may reduce purely executional analyst-to-VP work while increasing the value of business judgment, sales, process management, relationships, and operating skills. The guest says principals are less vulnerable because their work is more relationship- and process-based.

“But I think it eats away at like some of that analyst to VP level type process and I guess kind of the latter of like, oh, I need I…”—

ECONOMY

Credit Compensation — Private-credit associate compensation at top New York funds has included roughly $150,000 in cash compensation plus a similar bonus, with some packages reaching $325,000 to $350,000. After about seven years, total compensation can reach roughly $500,000 to $700,000.

“I think that's started to edge a little higher too. and that's like a that's only like a 25k to 50k delta from like the top private equity firms…”—

Career Bottleneck — Private-equity and private-credit career progression narrows at the senior-associate and VP levels as firms hire smaller classes. Many private-equity associates also move into private credit after two to three years, partly for lifestyle reasons.

“It really is a pyramid like most things in life where there's a ton of analysts ton of associates…”—

Operating Skills — Finance professionals are encouraged to develop transferable operating skills tied to improving real businesses rather than relying on multiple arbitrage. Those skills can lead to CFO roles with profit-sharing, although slower exits make current cash compensation more important.

“And I think the real economy stuff is really important here where the skill set you want to learn and that you want to build towards are skills that tie…”—

MARKETS

Private-Credit Liquidity — Delayed exits, continuation vehicles, difficult fundraising, and limited term-loan paydowns have increased illiquidity across private markets. Private-credit funds are seeing redemption requests in the teens despite 5% gates, while some investors may be shifting into discounted publicly traded BDCs.

“It's a really interesting time where I think unfortunately like some folks are more illquid than they want to be…”—

Institutional Demand — Institutional investors may continue using private credit as a substitute for traditional credit products, particularly where investment-grade secured paper is attractive. Retail investors may not return after experiencing or misunderstanding liquidity restrictions.

“I think from an institutional lens, you're using private credit to replace some of the other credit oriented products that you would historically have invested in…”—

Restructuring Position — Private credit may be better positioned than equity and broadly syndicated loans in restructurings because its documentation is tighter and its claims sit higher in the capital stack. Lenders may pursue loan-to-own or other restructuring outcomes, while equity absorbs the first loss.

“Multiples were higher. There's no real exit at the moment…”—

FORECASTS

Software Downside — Software companies face pressure from weaker pricing power, add-on competition, higher R&D or token spending, and historically high leverage of roughly seven times versus about five to 5.5 times for some comparable businesses. The guest says leveraged software could look much worse three years from now and cautions against complacently buying the dip.

“Like there's just so many there's like 10 different things hitting these software companies at one time…”—

Intro

The guest describes a bifurcated buy-side environment in which investment bankers benefit from IPO and M&A activity while private-market professionals face delayed exits, fundraising pressure, and illiquidity.

Year of the Banker

Investment banking currently offers stronger stability and variable compensation than private equity or private credit, where continuation vehicles, delayed realizations, and weaker fundraising constrain opportunities.

Private Credit Redemptions

Private-credit redemption requests are rising, including recurring requests near fund gates, reflecting investor concern, questionable product fit, and anxiety about software and technology exposure.

Retail Flows and Gating

Retail investors may have misunderstood private-credit liquidity restrictions, while institutions use the asset class more deliberately; redemption pressure also reflects FOMO around public equities and AI.

Comp Trends and Hiring

Private-credit compensation remains attractive, but hiring and promotion could slow as funds raise less capital, execute fewer deals, and require fewer associates and vice presidents.

Career Pyramid Reality

Buy-side careers remain pyramidal, with many people reaching associate but fewer senior slots; private-equity professionals increasingly move into private credit or smaller, more hands-on firms.

AI Reshapes Analyst Work

AI already automates much of junior analysts’ research, diligence, memo writing, and spreadsheet work, increasing the importance of business judgment, relationships, sales, and operating ability.

Big Firms vs Small Shops

Large firms such as Apollo still offer abundant capital and learning, but smaller or hands-on organizations may provide better exposure to management, operations, and tangible business-building.

Operators and Real Economy

The most durable career path combines investing with real-economy skills, including operating businesses, understanding technology deeply, managing teams, and creating growth beyond leverage or multiple arbitrage.

Agents and Human Edge

Operating roles can lead to lucrative CFO or portfolio-company careers, but slower exits mean operators increasingly depend on cash compensation rather than imminent profit-sharing outcomes.

Who Gets Displaced?

AI-generated code and accessible knowledge may help unusually proactive junior hires, while less adaptable senior professionals risk falling behind if they resist new tools and workflows.

Rates and Longer Holds

Agents are beginning to automate research, modeling, memoranda, and expert-call diligence, freeing investors to focus on conviction, persuasion, and human signals from management teams.

Software Credit Time Bomb

AI may reduce some junior and mid-level finance roles, but industry knowledge and tool fluency could let capable mid-career professionals perform work previously divided across associates and principals.

Choosing Your Career Track

Buy-side compensation and culture data reveal concerns about top-heavy organizations, limited advancement, insufficient vice-president seats, and deferred equity replacing broader partnership economics.

Top Jobs and Trading

Sticky inflation and higher-for-longer rates pressure valuations, refinancing, and exits, forcing private-equity firms to extend holding periods and pursue operational improvements or dividend recapitalizations.

Closing Takeaways

Investors trained during the low-rate era may lack recession experience and critical thinking, while software-credit strategies face a changed environment requiring deeper diligence and less complacency.

Banking Cycles and Layoffs

Software borrowers face refinancing risk in the late 2020s as AI-driven competition, pricing pressure, higher research costs, and heavy leverage threaten supposedly resilient business models.

Conclusion

The guest recommends combining prestigious early-career training with later optionality, avoiding unnecessary MBAs, considering small-business ownership, and targeting genuinely strong AI companies rather than speculative startups.

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Important Disclaimers

Not Investment Advice: For education only — not financial, tax or legal advice.

AI-Generated: Made by AI from source transcripts and may contain errors.

No Guarantees: Past performance does not predict future results; investing carries risk.

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