Key Takeaways
- • Thomas Friedberger, Deputy CEO and CIO of Tikehau Capital, told S&P Global's Private Markets 360 podcast that private equity will need to shift toward asset-heavy businesses, lower leverage and longer holding periods.
- • Higher interest rates make financing more expensive and make multiple expansion, a core private equity return driver, more difficult to achieve.
- • Investors are expected to place greater weight on capital allocation decisions and management's ability to generate returns from large-scale investment.
- • Friedberger expects private credit to continue benefiting from tailwinds, with the market expanding in both the US and Europe.
Summary
Global private equity strategies are expected to change significantly as investors move toward asset-heavy businesses, lower leverage and longer investment horizons, according to comments by Thomas Friedberger, Deputy CEO and CIO of Tikehau Capital, on S&P Global's Private Markets 360 podcast, as reported by ANI.
Friedberger said the global economy is shifting from a model centred on efficiency and consumption-led growth toward one driven by resilience and large-scale capital expenditure. Companies and governments will require substantial investment in supply chains, energy infrastructure, defence capabilities and economic sovereignty. He cited Google's recent large capital increase as an example, alongside heavy debt issuance in capital markets by hyperscalers.
He argued that the higher interest rate environment raises financing costs and makes multiple expansion much harder to achieve. Holding asset-heavy companies typically requires longer holding periods, less leverage and a greater focus on operational portfolio management at the company level. Friedberger said the quality of management decisions on where and when to invest capital will become an increasingly important factor in selecting businesses.
Friedberger also outlined macroeconomic risks from this transition, including the possibility of slower economic growth alongside higher inflation. He identified increased fiscal spending, production closer to consumers, additional insurance requirements and higher infrastructure expenditure as inflationary drivers. He said artificial intelligence could exert short-term upward pressure on semiconductor and electricity prices, even though it may reduce costs over the longer term.
On credit markets, Friedberger said private credit will continue to enjoy tailwinds, describing it as a market in expansion in both the US and Europe.
Friedberger said the global economy is shifting from a model centred on efficiency and consumption-led growth toward one driven by resilience and large-scale capital expenditure. Companies and governments will require substantial investment in supply chains, energy infrastructure, defence capabilities and economic sovereignty. He cited Google's recent large capital increase as an example, alongside heavy debt issuance in capital markets by hyperscalers.
He argued that the higher interest rate environment raises financing costs and makes multiple expansion much harder to achieve. Holding asset-heavy companies typically requires longer holding periods, less leverage and a greater focus on operational portfolio management at the company level. Friedberger said the quality of management decisions on where and when to invest capital will become an increasingly important factor in selecting businesses.
Friedberger also outlined macroeconomic risks from this transition, including the possibility of slower economic growth alongside higher inflation. He identified increased fiscal spending, production closer to consumers, additional insurance requirements and higher infrastructure expenditure as inflationary drivers. He said artificial intelligence could exert short-term upward pressure on semiconductor and electricity prices, even though it may reduce costs over the longer term.
On credit markets, Friedberger said private credit will continue to enjoy tailwinds, describing it as a market in expansion in both the US and Europe.
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