How Private Equity Picked Up Hollywood’s Marvel Playbook

Is the ability to think innovatively about professional money management no longer available to us?

Apologies for any technical glitch re: the LPA terms chart on the last post. Still learning how to best visualize information!

If you have thoughts on today’s post, please do reply/send me a message. It is more subjective than the typical stuff I have written, and I imagine some of you will have an array of reactions.

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Earlier this week, I caught up with a friend who covers the research function for a specific segment of public equities at a US bank. As we chatted, I shared my observation about what I’ve observed in the private markets:

“Bro, there’s nothing new anymore. It’s like reading the same news everyday.”

He nodded for a few moments. “I get it.”

I went on, “Private equity has perfected fundraising to the point where the size of the next fund is the only thing that matters. They’ve become so good at what they do. Am I off the mark here?”

He gave a brilliant analogy: “Yeah, it’s like the last decade of Hollywood blockbusters—sequels or comic book adaptations, over and over.”

That got me thinking. What would we call this phenomenon?

• The Marvel-ization of Private Equity?

• Investment Management’s Avengers Moment?

• The Rise of Sequel Syndrome?

It is remarkable how deeply comparable investment management has become to Hollywood’s practice of reworking existing storylines.

I recall reading somewhere that we watch reruns because knowing how things pan out at the end of a series or a movie is comforting for us.

So too for fund managers, successive fundraises are a form of profound relief. And they are hits repeatedly. The funds grow and grow and grow. Year after year after year. And the industry loves it.

If it ain’t broke, why fix it?

Desire for predictability > discomfort of innovation

These days, raising a second (or third) fund isn’t about solving new or unique problems. It’s about copying the model perfected by the industry’s most successful players. Countless “emerging” managers are simply trying to follow in the footsteps of financial titans, without the motive—or imagination—to necessarily challenge the status quo.

Take a step back and consider the evolution of private markets:

• In the 1980s, private equity (PE) leveraged buyouts (LBOs) emerged.

• The 1990s saw nerdy economists leave academia to establish quantitative hedge funds.

• The 2000s and 2010s marked the growth and maturation of PE, hedge funds, private credit, and venture capital (VC).

In some ways, it mirrors the Silicon Valley ethos of disrupting traditional industries, but with a major difference: the typical fund manager doesn’t seem motivated to break the mold. The goal is often just to replicate what works, not to innovate or rethink the process.

Notwithstanding its monumental success, private markets fundraising experiences its own challenges in the current environment. There’s skepticism from the industry’s largest investors about returns on investment. The introduction of countless SaaS tools and tech-driven solutions to reduce fundraising costs hasn’t delivered on its promises. New fund managers are finding it harder than ever to break into the field.

Indeed, it is these problems which consume some of the most intelligent and sharp minds in the United States today.

If you look back at the history of capital pooling, it’s clear that these efforts—of raising capital—have always been aimed at solving specific business problems. The joint-stock company, for example, offered a novel solution to three key issues: (1) diversification of risk, (2) pooling resources for large-scale projects, and (3) enabling the transfer of ownership in perpetuity. But now, despite immense success in pooling capital, the focus seems to have narrowed to just one thing—raising ever-larger funds.

Fundraising as the core achievement in private markets has led to a sort of complacency. You’ll hear new managers say stuff like, “Yeah, when I get to Fund III, we will open an office in Singapore…”

That’s kind of sad.

This trend of repeated innovation cycles no longer seems to punctuate the industry in meaningful ways.

Now, reading headlines or the high-cost analyses behind expensive, paywalled publications, it’s like déjà vu. Sure, the names and industries may change, but the basic narrative remains the same: a manager is raising a fund of a certain size focused on a specific sector, with a list of prominent investors committing large sums.

This also appears to have impacted financial journalism. Many seasoned reporters now spend their time covering the same news: the latest fundraise, often using the same prewritten templates. The lack of novelty leaves readers feeling like they’ve already seen the story before, even if the details differ slightly.

Predictions of the Past?

The “predictions for 2025” articles are almost cut-and-paste from “predictions for 2024,” perhaps with the exception that there’s a new administration in the White House (which has nothing to do with innovation or creativity).

It’s like predictions of the future are almost predictions of the past.

None of this is to discount the fact that 2008 happened, or that many people entrust their money to known money managers because they want to protect against risks of various kinds. But the risk-adjusted mindset existed prior to the advent and maturation of the private markets as we know them today.

The earliest modern U.S. mutual funds, which were in the business of capital preservation, rather than capital growth, emerged in the 1920s.

Massachusetts Investors Trust, the first widely recognized mutual fund, was launched in March 1924, by crockery salesman-turned-financier Edward G. Leffler with $50,000. Leffler also helped create two other early mutual funds: State Street Investment Corporation (July 1924) and Incorporated Investors (November 1925). All three were linked to Boston’s prominent Brahmin families, with Paul Codman Cabot, a member of the influential Codman and Cabot clans, serving as president of State Street Investment Corporation.

When the Investment Company Act of 1940, the primary law that governs pools of investable capital managed by investment professionals, was passed into law, the funds industry was billions of dollars large.

There has never been a moment since that the trade of managing other people’s money for a fee has been majorly threatened, despite the myriad events that have led insiders and onlookers alike to believe otherwise.

Has the absence of a true threat to the industry’s existence and the subsequent impeccability and perfection of raising capital foreclosed a culture of genuine curiosity?

Investment Management is a Very Successful Industry

In some ways, 2024 was a blockbuster year for investment management, despite widespread skeptical commentary to the contrary. A controversial set of regulations from the U.S. Securities and Exchange Commission, released in August 2023, was overturned by an influential court of appeals in June of this year. Meanwhile, assets under management (AUM) continued to rise into the trillions, and salaries for entry- and mid-level professionals grew too.

Yet, the worry about a fundraising “slowdown” was maybe more of a reaction to the abnormal fundraising frenzy of 2021, when some funds hit their fundraising target amounts in just three months? For example, most private fund documents allow anywhere from 12 to 18 months for capital to be raised before those monies need to be deployed. But after 2021’s irregular boom, expectations were set unrealistically high, neutralizing the incentive to think creatively.

The frenzy of that year created outsized fundraises and, more importantly, outsized expectations for what it means to succeed in investment management. “Success breeds complacency. Complacency breeds failure,” Andy Grove, former CEO of Intel, once remarked: “Only the paranoid survive.”

And to be sure, it’s not even about some grand conspiracy that the highest echelons want to keep things the way they are. In other words, even the most successful fund managers are experiencing a fatigue that comes with being successful. I wonder if they too think to themselves, “Man, where’s the excitement?” Innovative ambition in investment management has plateaued. The “paranoia” that once drove change and growth in private equity seems to be absent, especially at the center where the major players operate.

Heck, even venture capitalists are a part of the proverbial Marvel universe through what Nikhil Trivedi calls the “capital agglomerator” game—raising larger and larger funds as a business strategy in and of itself to invest across sectors and at every stage of a business.

We the Other Positivists

Which brings me to a more fundamental question: what series of events will kickstart the type of change we saw when privately managed pools of capital challenged the mutual fund industry?

Still, this question just poses a somewhat stolid inquiry: what’s the next asset class?

I want to toil at a point more perturbing.

Can investment management move on from the genteel pastures of fundraising as the preferred tactic of growth? Beyond raising larger funds, is there a more inventive way to engage in the business of professional money management?

The alternative reality is the one we live, perhaps morbid enough to prompt a third question: are we at the “end of history” for financial novelty?

There’s a parallel observation that historians and social theorists have made about the modern era generally.

Auguste Comte, a Frenchman credited with founding positivism—which dictates everything which can be known must be verifiable through empirical observation—has somewhat fallen out of favor in garden-variety university courses on sociology.

But his line of thinking proves instructive for our purposes: it was both heir to and descendant of a modern humanist tradition of thinking which insists that progress involves the relentless pursuit of unmasking all that which is unknown.

This desire to know everything attempted to take away the existence of mystery and myth, leading to another melancholic problem: if there’s nothing left to be discovered, to be unveiled, or to be found, what nourishes the human desire to find the new, odd, and bizarre things that challenge the core of our higher intellect?

For the many brilliant people—whatever their motives and incentives—that work in PE or VC, I’d proffer that in the current situation, they have hit a cerebral ceiling. Optimizing the (1) raising of capital as a fund manager and (2) the deployment of that capital to purchase and reshuffle a business as an investment professional, as we have discussed at length in these pages, involve very different skills. Both of which have been fine-tuned extremely well.

It appears that the fear of changing the approach which has brought untold prosperity to some of the smartest people in finance continues to outweigh the human itch to rupture the prevailing standard and search for what is destined to be found.

I am suggesting that the unknown is much bigger than the known. If the current mood of wearied complacency persists, the practices, technologies, and processes waiting to be discovered may perennially occupy the unexplored corners of the financial universe.

Next time, we will look at some emerging trends in investment management that hint at changes in investment management, and what change can look like more broadly.