Private Equity Experience

Is Private Equity Too Big to Fail?

• Emily Sander • Season 1 • Episode 19

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Welcome to another insightful episode of The Private Equity Experience podcast! In this episode, Emily Sander, Ed Barton, and Rory Liebhart dive into the controversial question: Is private equity too big to fail? As they discuss the parallels between the banking industry's "too big to fail" concept and private equity's massive influence, they explore the implications for investors, companies, and the broader economy.

Key Topics Covered:

  • What does "too big to fail" mean for private equity?
  • The role of private equity in the economy and employment.
  • Historical precedents and lessons from past financial crises.
  • Potential triggers for a private equity crisis.
  • The intersection of politics, public perception, and private equity.
  • Future outlook and actionable insights for investors and stakeholders.

Is Private Equity Too Big To Fail?

The discussion examines whether private equity firms have reached a stage where their failure could trigger a broader economic crisis, similar to the financial norms observed during the 2008 financial crisis.

Historical Context:

Exploration of historical events from the 2008 financial crisis to the recent banking troubles at SVB, providing context for our "too big to fail" discussion.

Interconnections and Stakeholders:

Conversation about private equity’s interconnection with pension funds, sovereign wealth funds, and the economy, shaping perceptions and potential government responses during crises.

Risk Management and Disruptions:

Analysis of how private equity navigated the 2008 financial crisis and COVID-19, focusing on liquidity and risk premium adjustments.

Potential PE Crises:

Discussion on what might trigger a private equity crisis, touching on the sensitivity to interest rate fluctuations and broader macroeconomic shocks.

Optical Challenges and Perception:

The hosts delve into the public and political perception of private equity, touching on its respective public image among sectors such as banking.

Highlights:

Economic Interconnections:

Discuss how private equity, including the PE-backed companies, can influence and be influenced by broader economic downturns.

Join Emily, Ed, and Rory as they delve into the nuances of private equity's resilience and its potential vulnerabilities, all while embracing the excitement of the upcoming football season!

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Who Are We?

Three insiders. One mic. All things private equity — explained. Hi 👋 We’re Ed, Rory, and Emily — a CEO, a CFO, and a Chief of Staff — here to demystify the world of private equity. Between us, we’ve sat in the founder’s chair, run PE‑backed companies, and worked on the deal side, so we know the wins, the pitfalls, and the jargon (and we’ll explain it).

Through the Private Equity Experience Podcast, our book On‑Ramp to Exit, and a library of free tools and templates, we share real‑world stories, practical strategies, and insider insights to help you navigate every stage of the PE journey — whether you’re leading a portfolio company, joining a deal team, considering PE, or just PE‑curious.

🔗Connect with Ed

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🔗Connect with Rory

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emily-sander_1_07-31-2025_151230:

We should do some witty banter at the beginning. Um,

snuffy_1_07-31-2025_151228:

Well, you normally start with the the difficult question

emily-sander_1_07-31-2025_151230:

I know, I know I usually start with the opening question, but, uh, I had back to back to back to back to back meetings all day. So we're gonna roll with, it's, it's early August, let's say. I'm excited and like absolutely thrilled that football season is upon us.

squadcaster-f7a4_1_07-31-2025_151228:

it

emily-sander_1_07-31-2025_151230:

That makes me a very, very happy person. Like just to give you this whole like seasonal lifecycle, you know how people have sad or like seasonal affective disorder when the days get darker. Okay, so there's like Christmas, new Year's, my birthday's in January, and then I take a vacation to Hawaii every February and the Super Bowls in February. After Super Bowl in February, I have like

squadcaster-f7a4_1_07-31-2025_151228:

Oh.

emily-sander_1_07-31-2025_151230:

a FD. After football disorder. I have like, I am like a mildly depressed afterward and when the days start to get shorter on June 21st, which is the longest day of the year. I get a little sad about the days getting shorter, but I'm happy because we're almost the football season.

squadcaster-f7a4_1_07-31-2025_151228:

a little taste of that dopamine with the training caps going on and all

emily-sander_1_07-31-2025_151230:

Yes. OTAs have started.

squadcaster-f7a4_1_07-31-2025_151228:

Yeah,

emily-sander_1_07-31-2025_151230:

Yeah, barn's, the new quarterback for the Seahawks.

squadcaster-f7a4_1_07-31-2025_151228:

there with the draft and

emily-sander_1_07-31-2025_151230:

Whoa.

squadcaster-f7a4_1_07-31-2025_151228:

you know,

emily-sander_1_07-31-2025_151230:

Oh, the draft is amazing. We have preseason starting next Thursday.

squadcaster-f7a4_1_07-31-2025_151228:

Yeah,

emily-sander_1_07-31-2025_151230:

Preseason games for the NFL start this weekend. Oh my gosh.

squadcaster-f7a4_1_07-31-2025_151228:

No, I'm,

emily-sander_1_07-31-2025_151230:

Oh my gosh.

squadcaster-f7a4_1_07-31-2025_151228:

I'm a college football guy. Um,

emily-sander_1_07-31-2025_151230:

Yeah.

squadcaster-f7a4_1_07-31-2025_151228:

and that just, kind of runs my life in the fall, to be honest with you. Yeah. Yeah. And

snuffy_1_07-31-2025_151228:

I used to be more college football until the NIL made it into like free agency every year. And now I, again, I'm a Notre Dame grad, so I generally, I had a, there was a, it was a good season last year.

squadcaster-f7a4_1_07-31-2025_151228:

yeah.

snuffy_1_07-31-2025_151228:

you know, it was one of those, every year they go sign a new quarterback and, you know, they're, you know, so it's, it's, college football has changed enough. I,

squadcaster-f7a4_1_07-31-2025_151228:

It

snuffy_1_07-31-2025_151228:

I definitely am now more of a Seahawks person than

emily-sander_1_07-31-2025_151230:

Yeah.

snuffy_1_07-31-2025_151228:

than a college. And, and I'm excited because I like the fact that they've gone to Clin. Kubiak is a offensive coordinator and they're gonna be running like uh, 22. you know, so you're gonna have two tight ends. Two, two running backs. You got a fullback.

squadcaster-f7a4_1_07-31-2025_151228:

Smash mouth.

emily-sander_1_07-31-2025_151230:

We drafted a fallback.

snuffy_1_07-31-2025_151228:

Yeah,

squadcaster-f7a4_1_07-31-2025_151228:

at this point. Yeah. Which is good. It's a good place to

snuffy_1_07-31-2025_151228:

I was,

squadcaster-f7a4_1_07-31-2025_151228:

you could

snuffy_1_07-31-2025_151228:

if you wanna make the playoffs every year, and Raven

squadcaster-f7a4_1_07-31-2025_151228:

year.

snuffy_1_07-31-2025_151228:

Football

squadcaster-f7a4_1_07-31-2025_151228:

Yeah.

snuffy_1_07-31-2025_151228:

in the central. So I mean,

emily-sander_1_07-31-2025_151230:

Okay,

squadcaster-f7a4_1_07-31-2025_151228:

behind the, the Seahawks, the Ravens are my favorite team. They always have been. Yeah. I,

emily-sander_1_07-31-2025_151230:

this is, this is before pre-season starts. Predictions for the Seahawks. I'm gonna go,

squadcaster-f7a4_1_07-31-2025_151228:

hmm.

emily-sander_1_07-31-2025_151230:

they go like they win 10 to 12 games, make it to the playoffs by winning the division and then lose in their first or second playoff game.

squadcaster-f7a4_1_07-31-2025_151228:

Hmm. So they make it to like the divisional round. You think Pass the

emily-sander_1_07-31-2025_151230:

Yes. Which I think

squadcaster-f7a4_1_07-31-2025_151228:

the

emily-sander_1_07-31-2025_151230:

good.

squadcaster-f7a4_1_07-31-2025_151228:

in that game

emily-sander_1_07-31-2025_151230:

Yeah. Yeah.

squadcaster-f7a4_1_07-31-2025_151228:

if they, they either, they, either they win their divisional game or they're, you know,

emily-sander_1_07-31-2025_151230:

A wild card.

squadcaster-f7a4_1_07-31-2025_151228:

to the champion NFC or the NFC championship or they're out. Yeah.

snuffy_1_07-31-2025_151228:

Yeah, I, the I, you guys know me well, so I don't bet. Ever

squadcaster-f7a4_1_07-31-2025_151228:

Me

snuffy_1_07-31-2025_151228:

until this year.

emily-sander_1_07-31-2025_151230:

Oh,

snuffy_1_07-31-2025_151228:

the first time I got on drafts, when they

emily-sander_1_07-31-2025_151230:

no.

snuffy_1_07-31-2025_151228:

the Seahawks over under on wins was seven and half.

squadcaster-f7a4_1_07-31-2025_151228:

You hit, you hit the over

snuffy_1_07-31-2025_151228:

And I was like, was like, I'm putting three hun down on this one for the over

squadcaster-f7a4_1_07-31-2025_151228:

I mean that's

snuffy_1_07-31-2025_151228:

and

squadcaster-f7a4_1_07-31-2025_151228:

like buying another car. 300. Yeah.

snuffy_1_07-31-2025_151228:

it is for me. Yeah, that's, that'll fund a tire, another vehicle. And then. They had like, will the Seahawks make the playoffs? And I said, yes. So there's another three, hun. I was like, look, I, to me this is like, that one's a little bit more speculative,

squadcaster-f7a4_1_07-31-2025_151228:

Hmm.

snuffy_1_07-31-2025_151228:

going with a, I'm going with a to 11 win wild card.

squadcaster-f7a4_1_07-31-2025_151228:

Yep.

snuffy_1_07-31-2025_151228:

think

emily-sander_1_07-31-2025_151230:

Okay.

snuffy_1_07-31-2025_151228:

I actually think the, the Rams have one last. last, uh, shot at the, at the, the division.

emily-sander_1_07-31-2025_151230:

Yeah.

snuffy_1_07-31-2025_151228:

I think we make the wild card and I think we win our first wild card game and lose in the next round. Um,

squadcaster-f7a4_1_07-31-2025_151228:

I'd take that on a parley. If I were a batting man, I'd link those together and probably see what I could get. Yeah, like that's good.

emily-sander_1_07-31-2025_151230:

Wait. So Ed someone somewhere thinks the Seahawks won't win seven games,

snuffy_1_07-31-2025_151228:

won't win eight games. They, they

emily-sander_1_07-31-2025_151230:

won't win eight games.

snuffy_1_07-31-2025_151228:

Yep. That was Vegas. came out like mid, right after the draft. And, and I was like, I was like, how do I do sports betting? This is ridiculous. That's,

emily-sander_1_07-31-2025_151230:

is stupid.

snuffy_1_07-31-2025_151228:

I'm like, I would've taken, I, I would've really struggled with that last year.'cause I'm like,

emily-sander_1_07-31-2025_151230:

Yeah.

snuffy_1_07-31-2025_151228:

new head coach. You got, you know, but I'm like, all looking at like, the DK Metcalf left and Tyler Lockett left,

emily-sander_1_07-31-2025_151230:

More trouble than he's worth.

snuffy_1_07-31-2025_151228:

like, I was like, Smith, the, the Sam Donald's a wash. I think it's, I think they're about the same. And I'm like, DK Metcalf's a unique talent that never was able to put it all together and then was always good for a personal foul or an unsportsmanlike

emily-sander_1_07-31-2025_151230:

many unnecessary penalties, more trouble than he's

snuffy_1_07-31-2025_151228:

and then lock it is, I, I'm like, you go lock it to Cooper Cup and I'm like, I, me it's a, that's a wash.

emily-sander_1_07-31-2025_151230:

and in Jake and Jake. Good.

squadcaster-f7a4_1_07-31-2025_151228:

And as the defense

snuffy_1_07-31-2025_151228:

Yeah,

squadcaster-f7a4_1_07-31-2025_151228:

I mean,

snuffy_1_07-31-2025_151228:

he's the same as last year. And, and I'm like, and then you had, and I know Rory, you're a big college football guy, but you know, fricking it just didn't work. It just didn't work with Ryan Grub.

squadcaster-f7a4_1_07-31-2025_151228:

surprised by that. Honestly, the guy

snuffy_1_07-31-2025_151228:

So was I. But I'm like, okay, now we're going to 22 baby, we're gonna run like K nine behind a fullback.

squadcaster-f7a4_1_07-31-2025_151228:

Exactly.

snuffy_1_07-31-2025_151228:

then you've got, and then you've got, you know, blocking tight ends and this other stuff. I'm like, this is, this could, this could go.

squadcaster-f7a4_1_07-31-2025_151228:

yeah. No doubt.

emily-sander_1_07-31-2025_151230:

We shall see.

squadcaster-f7a4_1_07-31-2025_151228:

cool

emily-sander_1_07-31-2025_151230:

We shall see.

squadcaster-f7a4_1_07-31-2025_151228:

Absolutely. And it's here. It's

emily-sander_1_07-31-2025_151230:

We're gonna, we'll do some check-ins here as we go along the season. Um, let me like watch this segue. Here we go. So the Seahawks might not be too big to fail, but is private equity too big to fail?

squadcaster-f7a4_1_07-31-2025_151228:

Hmm.

emily-sander_1_07-31-2025_151230:

That's our, that's our question for the day.

squadcaster-f7a4_1_07-31-2025_151228:

cases to be made for that. Yeah. Yeah.

emily-sander_1_07-31-2025_151230:

I mean, where have we heard this term before?

snuffy_1_07-31-2025_151228:

Banking. Yeah. Bank, I mean, the, the last, the last time we went through the, the financial crisis was, you know, back in the oh 8, 0 9 and you had the too big to fail and then it kind of bubbled up again when you had SVB kind

emily-sander_1_07-31-2025_151230:

Oh.

snuffy_1_07-31-2025_151228:

at the verge of and, and. The Fed came in and basically said, and the, and the Treasury came in and said, no, we're not gonna let them fail. We're gonna orchestrate the sale of those banks. And, you know, and we talked about that, I think last pod before, you know, the s.

squadcaster-f7a4_1_07-31-2025_151228:

the sale or take a direct e equity investment in it, or, you know, put together like bad asset facilities and stuff, which a lot of that stuff could easily be applicable to private equity, private credit, you know, all of that stuff. The point is, there's 13 trillion of assets under management in these these institutions now. So I would make the case that they're pretty critical to the, you know, money movement and overall, uh, kind of fueling of the economy. I think one in 10 out there is, uh, is working for a company that's private equity backed, which tracks to me for sure.

emily-sander_1_07-31-2025_151230:

What's the tip? What, what makes something too big to fail? Or what's the tipping point where it's like, Hey, this is a thing in the market, but it's not too big to fail now. Oh, we gotta save it. We gotta bail it out.

squadcaster-f7a4_1_07-31-2025_151228:

I,

snuffy_1_07-31-2025_151228:

so it's really, it's a, that's a political question.

squadcaster-f7a4_1_07-31-2025_151228:

was just gonna

snuffy_1_07-31-2025_151228:

With a political answer. So it's how many workers or workers or depositors are gonna get impacted by the failure.

emily-sander_1_07-31-2025_151230:

Ah,

snuffy_1_07-31-2025_151228:

when you go back to, and I'll, and I'll go to the classic and Royal will appreciate this'cause he is a bankruptcy guy. So I go back to 2008 financial crisis and the automakers

emily-sander_1_07-31-2025_151230:

yeah.

snuffy_1_07-31-2025_151228:

now Ford, God bless him, had gone out prior to the financial crisis, raised capital.

squadcaster-f7a4_1_07-31-2025_151228:

that's

snuffy_1_07-31-2025_151228:

Just, I, it was almost dumb luck from my perspective,

squadcaster-f7a4_1_07-31-2025_151228:

Yeah.

snuffy_1_07-31-2025_151228:

raised capital so they didn't have to go through the federal government thing, but the two big automakers, so and, and, uh, GM basically had to file for bankruptcy. Well, they were too big to fail, so the government bailed them out, but they bailed them out by basically going get her file bankruptcy. But. We're gonna reorder. In order to do that, you're gotta follow our rules, which are, because you're gonna lay off too many folks and it's gonna screw up the pension plans, and it's gonna screw up the unions. And so you're gonna have to honor your union pension contracts. Even though those should not have been honored in the bankruptcy, they should have gone to erisa. You're gonna have to keep certain levels of employment, even though normally you wouldn't. You're gonna have to keep certain plants open and you're gonna have to shutter others. You're gonna have to do, and so I Too big to fail is really like a, and so they up, they overturned. What would be the normal bankruptcy preference process?

squadcaster-f7a4_1_07-31-2025_151228:

Yeah.

snuffy_1_07-31-2025_151228:

order for pay for payment, in order to, so they wiped out bond holders. They wiped out secured creditors and they kept unsecured creditors in. And, but it depended on who it was. And I think private equity's in the same boat where you've got, like Rory said, one out of every 10 employees works for private equity backed business. That's a lot of votes. And so I think it's one of those where, you know, the, the issue on private equity being too big to fail is really. Is the private equity is a way that they've structured their portfolio companies such that they cannot withstand kind of an economic crisis.'cause they have too much leverage, they've got too much in the way of covenants, which then cascades down to the banks. So now you have private equity has created the failure because of how they've financially engineered the

emily-sander_1_07-31-2025_151230:

They're so intertwined with the banks.

snuffy_1_07-31-2025_151228:

It's so intertwined with a bank's private credit and, and one out of every 10 employees. That there's an opportunity that the government will not let private equity. Now, they might take the, you know, the, the equity general partners. Those guys are gonna pay the price. But the limited partners who are pension funds and college endowments and state, you know, state pensions, they'll probably be, we're gonna help take care of you. The employees. We're not gonna let y'all get outta work. And the banks, you know, they can't let the banks fail. So I think it's, the GP will get exposed. Everybody else is, there's a lot of political capital there that they're not gonna want to.

squadcaster-f7a4_1_07-31-2025_151228:

Yeah.

emily-sander_1_07-31-2025_151230:

but.

squadcaster-f7a4_1_07-31-2025_151228:

that too. what, what's different now that we've seen, you know, going even more recently to five years ago where the government had stepped in with stimuli of some sort is like, there seems to be a move more towards directly, you know, supporting the consumer and letting the, you know, surrounding. and things like that, you know, wither and stuff, maybe a little bit differently than, you know, basically propping up banks and businesses in the past. That being said, private equity is a, just a overall, um, kind of industry. it's, it's, there are many, many, many firms out there, so I don't think it'd be a uniform thing. We, you know, every private equity group would be too big to fail or, you know, But there would be some, you know, it, it, there, there would be some that would be left to die. There would be some that would probably be supported, you know, like the Blackstones of the world and you know, uh, you know, Apollo and some of the biggest ones out there. I think there's probably a case to be made that there's some major institutional risk if something like that tanked. But, but not sort of middle market perhaps, you know? So

emily-sander_1_07-31-2025_151230:

Well.

squadcaster-f7a4_1_07-31-2025_151228:

not so black and white, I guess in that respect.

emily-sander_1_07-31-2025_151230:

Well, you said major institutional risk, and I'm wondering like. There, is there a threshold where this thing is so intertwined? This thing has so many workers involved or so many downstream impacts that it, it just reaches a tipping point and then there's maybe a question of how do we do it? What conditions do we put on this thing? All these different, maybe political aspects, but is there just a fundamental, this thing is so entrenched and foundational now that we can't not do anything.

squadcaster-f7a4_1_07-31-2025_151228:

Hmm. Some of it really does come down to the sector coverage. I mean, I think there's probably some pretty big private equity funds out there. Even even ones where Ed and I have like worked for their operating companies that are, you know, basically. Buy distressed businesses and, you know, distressed assets. I don't think that that's necessarily what the kind of business, you know, PE group would be to prop up. But it's, you know, others that are exposed to, you know, uh, manufacturing and, and other sort of, you know, kind of, uh, healthcare, things like that. I think it, it, it's not gonna be a blanket approach, um, any stretch. And I think there, there has to be a. Probably a careful view as to, you know, what constitutes, you know, uh, risk as we say. You know, um, what does it mean if, if you let a big PE fail, like you're going to, you're gonna affect a lot of pension funds and endowments and other LP institutions, but, um, but maybe that's, maybe that's not, uh. Maybe that's contained to sort of domestic LPs do, I mean, I'll just put it out there. Does, does the US care whether, know, a sovereign wealth fund from the Middle East suffers the fate? I don't know. This is hypothetical, but these are things that come to mind when I think about how do you parse through, who you let you know kind of stay, and who you let die.

emily-sander_1_07-31-2025_151230:

There's also, I mean, you mentioned political, there's just optics and sentiment where when the automakers were in trouble and Obama went in and saved them, but also put these conditions around, you know, uh, emissions and ev and all this stuff, there was a sentiment of it. You can't let Ford just die. That's, that's not

squadcaster-f7a4_1_07-31-2025_151228:

Yeah.

emily-sander_1_07-31-2025_151230:

okay. That's not American. Is there a sense of, you know, there's a different, uh, tone when it comes to PE versus some of these other. Industries, is there optics to it?

squadcaster-f7a4_1_07-31-2025_151228:

Well, I would argue they're definitely not in the same, you know, political view as Ford per se, right? Like that's institution. Uh, I think, I think there's a perception of private equity out there that there, you know, it's, it's, it's not, it's, it's a, it's opportunistic and, you know, uh, you know, basically, you know. Can be harmful as much as anything in some ways for vis-a-vis those other institutions like banks and stuff, you know, and, and other tra more traditionally viewed sources of funding, call it.

snuffy_1_07-31-2025_151228:

Yeah, I think as Rory noted, the there is a real dynamic of the perception of of the private equity. Again, the GP is gonna be the one that's vilified.

squadcaster-f7a4_1_07-31-2025_151228:

Yeah.

emily-sander_1_07-31-2025_151230:

Yeah.

snuffy_1_07-31-2025_151228:

when, when things are going bad, politicians like to be able to point to somebody or something and go, it's your fault. It's not my fault. Even though I structured a bunch of things that made this as an incentive for you. Um, but it's not my fault. It's your fault gp. And therefore you're gonna end up with, you know, kind of getting the, getting the hit. And, you know, to your point, Emily, the, the, you know, it was sad, it was sad for a car guy like me to see Pontiac die. I mean, that was, and that was required by the government. The government said, Pontiac, you're dead. Saturn, you're dead. Sob. You're dead. Now, sob, less, less of a concern for me, but the, know, but they basically killed up, like with gm, they basically said, you're gonna, they had a special working group from the government who was here to help look at all this stuff and say, as a condition, you're gonna have to kill off these underperforming areas, et cetera, et cetera, et cetera. But it's General Motors a as Rory noted, that's a, that's a, a icon going back to, you know, Alfred Sloan days and now

squadcaster-f7a4_1_07-31-2025_151228:

industry in a

snuffy_1_07-31-2025_151228:

Yeah. And then, and then you go over to, and I think you've run on the same thing with steel and you're running into the same, especially with the current administration who's kind of got a fixation

squadcaster-f7a4_1_07-31-2025_151228:

gonna say, yeah.

snuffy_1_07-31-2025_151228:

realm manufacturing. Um, but I don't think you're gonna get that same, you're not gonna get that same feeling about BlackRock.

squadcaster-f7a4_1_07-31-2025_151228:

Right, right.

emily-sander_1_07-31-2025_151230:

No.

squadcaster-f7a4_1_07-31-2025_151228:

BlackRock, the, the group that, you know, again, this is fact, you know, buys up tracks of residential homes and in massive swaths and, you know, is able to sort of flip that to a pro. I mean, like there's a perception, I'm not saying it's correct or not correct. About private equity that, uh, is, you know, vulture like, uh, you know, um, uh, it's optically not the same thing as, you know, saving, uh, you know, a, a banking system, for example, even, you know, bank of America where everyone, you know, goes to, know, deposit their paychecks and, you know, take out little loans for, you know, automobiles and things like that, you know, whatever.

emily-sander_1_07-31-2025_151230:

It is, it's almost like pe as a, as a, as a group should hire like, um, like a PR firm to rebrand themselves or to have a new image.'cause then they'll have some different sentiment.

squadcaster-f7a4_1_07-31-2025_151228:

well,

snuffy_1_07-31-2025_151228:

to do that.

emily-sander_1_07-31-2025_151230:

Love. Yes, yes, yes, yes.

squadcaster-f7a4_1_07-31-2025_151228:

You know, maybe if that were the case, like if Mitt Romney would've be become president back in the day, like that could have been a thing.'cause he, he was, he came from the private equity space. One thing that's clear though, you know, is like the whole foundation of private equity is that it's not a bank, right? Like. banks have been propped up, beca because they're so close to, um, you know, our, our, our government in a lot of ways. You know, they're highly, highly regulated. Just the private equity model is a highly regulated set of entities. Would just, wouldn't be the same thing. It would be completely different. It would be, know, lower yield and you know, much more, uh. know, uh, narrow in, in what it can do and can't do as a, as a result of having those governmental protections. That's what the banks give up is being able to be competitive with, you know, groups like private credit, private credit funds, and, and PE because have to have a certain level of capital bank. Banks have to, you know, adhere to certain regulations that came out of that financial crisis as a result of having to be propped up, you know? So, um, PE would become more bank-like if they were in that scenario, probably.

emily-sander_1_07-31-2025_151230:

How did PE do for the 2008 financial crisis for COVID? Like were they resilient or were they at the edge of.

snuffy_1_07-31-2025_151228:

Well, I would, I would make an argument. Certainly the PE group that Rory and I were working with, they actually helped the government in the 2008 financial crisis.'cause they went

emily-sander_1_07-31-2025_151230:

Ah.

snuffy_1_07-31-2025_151228:

to the, to the, like, and, and even prior, they went to R tc. They've got, they, they got their start like in the RTC world back in, you know, kind of buying up bank assets.

squadcaster-f7a4_1_07-31-2025_151228:

Yeah.

snuffy_1_07-31-2025_151228:

they're, you know, the, they, they provided liquidity for illiquid. Illiquid elements so that the government could get'em off their balance sheet.

squadcaster-f7a4_1_07-31-2025_151228:

Yeah.

snuffy_1_07-31-2025_151228:

they made a small fortune, large fortune

emily-sander_1_07-31-2025_151230:

I am sure they did.

snuffy_1_07-31-2025_151228:

Um, but that was, that was part of the, that was they private equity in large part bailed out, helped bail out the 2008 financial crisis for a profit. Of course, it was not an altruistic thing, but you know, they provided the liquidity.

squadcaster-f7a4_1_07-31-2025_151228:

Yeah.

snuffy_1_07-31-2025_151228:

The COVID. I think COVID, we talked about this a lot. I think COVID actually is gonna prove to be a disruptor. The other direction where asset prices went way up. Um, you know, the, the discount rate came way down and they ended up overpaying for a bunch of stuff. And I think there's gonna be a kind of a reckoning as to what the returns are gonna be on those, on those.

squadcaster-f7a4_1_07-31-2025_151228:

risk premium should have been higher for sure.

snuffy_1_07-31-2025_151228:

Oh yeah, it should have. And, and the challenge there was, you know, when you've got everybody cha, when you've got a lot of liquidity chasing too few deals, the, the concept, those concepts start going, it becomes a, a supply and demand thing. And you move off of your spreadsheet where you've gone, okay, what's the beta, what's the risk premium? What's the risk free rate? And you go, well, the risk free rate's now zero because they. Or negative'cause they've basically cut interest rates down to nothing.

squadcaster-f7a4_1_07-31-2025_151228:

Yeah.

snuffy_1_07-31-2025_151228:

they try and keep the economy moving and so, you know, you overpay in that moment. But that now that we've got a risk-free rate sitting up at like 4%, which the Fed chose not to make any changes to interest rates. You know that what's changed is that that risk, that risk return component has gone up by 4%, and so you're now, now when you're doing your discount rate, the, the, even if the risk premium has not changed, so it's, you know, 4% or 5% over rate, the risk-free rates change substantially.

squadcaster-f7a4_1_07-31-2025_151228:

Yeah, that's right. and then off offset by that is, of course, you know, the benefits one got if you're invested in the company, uh, from all the stimulus and, and PPP and all the, all the loans that were forgiven, uh, you know, during that time, you know, like basically. US Treasury was, uh, an ATM machine rather than

snuffy_1_07-31-2025_151228:

Mm-hmm.

squadcaster-f7a4_1_07-31-2025_151228:

out actual loans that you had to pay back. So, yeah, I mean there's, it was an interesting time for sure.

emily-sander_1_07-31-2025_151230:

So you both got in the risk premium quota. Ding. DD ding for the episode.

squadcaster-f7a4_1_07-31-2025_151228:

times.

emily-sander_1_07-31-2025_151230:

can you explain like in normal human language what Ed was just saying with like the risk premium and the 4% and the dah, dah, dah. Like what does that mean in real life?

squadcaster-f7a4_1_07-31-2025_151228:

It just means that at a point in time, the price for assets was artificially low relative to the intrinsic value and should have been reflected with higher, higher pricing based on the risk that is

emily-sander_1_07-31-2025_151230:

Okay.

squadcaster-f7a4_1_07-31-2025_151228:

and come to bear.

emily-sander_1_07-31-2025_151230:

Okay. And is making a face, like, how could you not have understood me, but.

snuffy_1_07-31-2025_151228:

I was just sad that I wasn't the one asked to explain my own definition of, because I teach this.

squadcaster-f7a4_1_07-31-2025_151228:

I, yeah. Yeah. I'm, I'm, uh, yeah. Yeah.

emily-sander_1_07-31-2025_151230:

What Ed meant to say was, um, okay. Double barrel question for you, what would cause a legitimate PE crisis, and then what do you think would happen?

squadcaster-f7a4_1_07-31-2025_151228:

Gosh, that's a wonderful question. Uh, I think. A shock to the capital markets where, you know, somehow the, if there's variable interest rate debt on the books and, and interest rates moved up massively in a shock scenario that you couldn't really forecast or hedge for. Then that would create a problem because I'd say the biggest inherent risk with the private equity business model, as we've talked about in our book and even on this podcast, is the use of leverage. You know, just lever leverage. Leverage. Leverage just means when the, when the, when the, know, when the merry-go-round stops, somebody's gotta pay the bill, and if it stops in a place where you can't afford to pay the bill, then there's problems, you know?

snuffy_1_07-31-2025_151228:

Yeah, it's, it is gonna be, it's gonna be a liquidity issue, and that liquidity is gonna be driven by, you know, as Rory said, it's a shock to the capital market. So when you end up with, with decreased liquidity, so basically banks aren't willing to loan at certain rates order to refinance debt. The interest rates start to go up. Essentially, it's a supply and demand issue. And so if you've got a, if you've got a supply of money and there's a high demand for it. From a liquidity perspective, that's when interest rates rise.

squadcaster-f7a4_1_07-31-2025_151228:

Yeah.

snuffy_1_07-31-2025_151228:

so that, that becomes, even if they do have the ability to refinance the existing debt, the, the issue will then be one of, they've either gotta go back out to their limited partners and go, Hey, I need more money'cause I've gotta now dele the these investments, so I need to put in equity, which is gonna impact your return significantly. Or I'm refinancing, but I'm refinancing at a higher interest rate, which has higher debt service. Which is gonna impact the performance of the underlying asset. Now again, most of these companies trade on an EBITDA multiple, so you don't have to factor in interest. So they're gonna, you know, arguably a private equity sponsor's gonna go, yeah, I'm gonna prefer to do that because I still get the same ebitda. But the leverage is still there and a cashflow is now going out to the bank. And if you don't, if you've got a larger financial crisis, your ability to be able to cover that debt service is gonna be limited. Because you're likely experiencing top line, top line pressure as well at the portfolio company.

squadcaster-f7a4_1_07-31-2025_151228:

The fact of the matter is that the private equity is, is probably never gonna be like the direct bailout because the system is based on their borrowing. So banks effectively, if you will, and other, other more regulated sources. So like is the bailout would be to the banks to, to backstop what? what the obligation from pe, when I say pe meaning PE operating companies and all the, like, there would be a, there would be a direct bailout more to the banks than the PE sector itself. Now, there may be some, as Ed talked about, you know, some sort of, um, retribution or not, that's not the right word, but like there, there would be some. Some means to go after the general partners in these businesses to basically try to make the, the government whole, if it's gonna ba, you know, bail out the banks that would then support the private equity, you know, businesses and stuff. Um, it, it would just be, I don't think that I, I just think it would be somehow, some way, not a direct, Hey, we're gonna, we're gonna bail out, um, you know, BC private equity group. I just don't see that happening.

emily-sander_1_07-31-2025_151230:

So you said shock to the system. So is this an acute, is this a drastic increase in interest rates and or over a short period of time, or is what, what trigger it? That would trigger it?

squadcaster-f7a4_1_07-31-2025_151228:

Yeah. And again, I don't know the likelihood of that something like that happens. We're talking in big Theoreticals Hall here,

emily-sander_1_07-31-2025_151230:

Yeah.

squadcaster-f7a4_1_07-31-2025_151228:

um,

emily-sander_1_07-31-2025_151230:

But theoretically that like if that somehow.

squadcaster-f7a4_1_07-31-2025_151228:

cause that, ed? What do you think? Like what would be, what would result in like, just a spike like that,

snuffy_1_07-31-2025_151228:

I, I think it would be a combination. Yeah, it would be. Well, yeah, an invasion of Taiwan.

squadcaster-f7a4_1_07-31-2025_151228:

That's exactly Good point. I was gonna say

snuffy_1_07-31-2025_151228:

so.

squadcaster-f7a4_1_07-31-2025_151228:

Yeah,

snuffy_1_07-31-2025_151228:

Yeah, so an invasion of Taiwan would probably have a significant spike in in, and then the other one would be a sovereign debt crisis like US sovereign debt crisis where we fail to raise a debt ceiling.

squadcaster-f7a4_1_07-31-2025_151228:

Yeah.

snuffy_1_07-31-2025_151228:

And so now all of a sudden you've, the risk on the, again, risk-free rate is generally driven by the US Treasury,

squadcaster-f7a4_1_07-31-2025_151228:

Yes.

snuffy_1_07-31-2025_151228:

by the, by the, in theory it's the US Treasury bill, 30 day treasury bill is the, is the risk-free rate proxy. And so if the, there's a US sovereign debt crisis, the val, then the interest rates on those are gonna spike. As a result, you're gonna see that cascade all the way through the the system, and that's one that you know, if it's a debt ceiling issue, you may not know until the day that vote's taken whether it actually is increased or decreased, although the mark will price in a probability, but it could go opposite of what you expect.

squadcaster-f7a4_1_07-31-2025_151228:

I'm trying to remember like the last time that happened to a country in the world. I mean, I'm sure it actually happens more than I think and gets headlines for, but one that comes to my mind, many, you know, maybe like 15 years ago or something like that was like Iceland, where it really like it completely, failed in that regard. Um, yeah. Yeah.

emily-sander_1_07-31-2025_151230:

else do people need to know about PE being too big to fail or not? I guess we've assumed that.

squadcaster-f7a4_1_07-31-2025_151228:

takeaway here is, uh, you know, PE is, is and I'll throw private credit in there too, but basically, sources of financing that aren't, aren't banks and things like that. Um, it's just, it's so integral to the economy. There's so much interconnectedness as, I mean, again, you talk about it from the standpoint of assets under management, meaning, you know, uh, companies that are owned, which then employ people for which, you know, one in 10 people work for private equity back. It's really integral. It's, uh, it's not a, not like a small part of the economy. It's massive, you know, and it's global too. So, um, yeah. So I think anything, um, know, hitting the economy hard is gonna affect. You know, private equity just as much as it does, you know, any other or, or source of financing, basically, banks, et cetera, they're all tied together. It's all

snuffy_1_07-31-2025_151228:

Yeah. I, I think,

squadcaster-f7a4_1_07-31-2025_151228:

It's like it's all truly tied together. Yeah.

snuffy_1_07-31-2025_151228:

yeah, I think the, the private equity situation, you know, as, as best I could analogize it would be, it is not the gonna be the first domino that falls.

squadcaster-f7a4_1_07-31-2025_151228:

Correct.

snuffy_1_07-31-2025_151228:

Um, but it's gonna be one of the dominoes and it's portfolio, so it's not likely to cause the problem, but it is likely to get impacted by like where he said, like, by any macroeconomic issue and a dominoes may be falling this way or they may be falling this way. And in 2008. They may have been follow both directions. The private equity was actually the domino where stuff fell and it propped it up on both sides, you know, in the case of some of the, the toxic assets.

squadcaster-f7a4_1_07-31-2025_151228:

Yeah.

snuffy_1_07-31-2025_151228:

you know, you may, and again, that was my experience'cause I was in the financial services sector, but the other way, you know, it's, it's likely to get cascaded and because of the leverage and because of the ownership structure. They're likely to have amplified downstream impacts to the portfolio. The portfolio companies are really what gets impacted,

squadcaster-f7a4_1_07-31-2025_151228:

Yeah.

snuffy_1_07-31-2025_151228:

and that's where your, that and the limited partners are gonna be the ones that are impacted most. And they're also gonna be the ones, if there's a bailout, if there's a too big to fail, it's gonna be because of pension funds. So you got ERISA and the government will pull, will pull themselves into the process because of erisa. Or it's gonna be because you have a lot of workers getting displaced and there's a lot of leverage, and then they'll overreact and put a bunch of regulation in place to

squadcaster-f7a4_1_07-31-2025_151228:

Yeah.

snuffy_1_07-31-2025_151228:

fix the problem.

emily-sander_1_07-31-2025_151230:

It reminds me of those plants that you see the plant above the ground and then there's this huge interwoven root system where if you try to pull this thing up, you're pulling up like your entire yard and you just don't see all these connections until something horrible happens. Um, just outta curiosity, is there a PE firm, I mean I think of like US-based PE firms, is there a significant PE firm? Headquartered in another part of the world where if something happens to that one for geopolitical reasons or something else, it'll have a, a rebound effect to us, or are we kind of the center of things and then it'll go the other direction?

snuffy_1_07-31-2025_151228:

Um, no, there's PE firms worldwide. Um, but I actually think your geopolitical impacts are gonna be more sovereign wealth funds

squadcaster-f7a4_1_07-31-2025_151228:

Yeah.

emily-sander_1_07-31-2025_151230:

Yeah.

snuffy_1_07-31-2025_151228:

fund to oversee. So a sovereign wealth fund, you know, like your, a lot of your petro states.

squadcaster-f7a4_1_07-31-2025_151228:

Yep.

snuffy_1_07-31-2025_151228:

The Scandinavia countries, they have sovereign wealth funds, and if something happens there where they need to get liquid, that's, and that's gonna be an, a geopolitical impact. And they've got investment including investment in private equity that could cascade down through, um, cascade through the system. So I think it's, you know, you, you have the Saudi. Sore fund, which is one of the largest in the world, or may the largest in the world, and something happens in the Middle East because it's the Middle East.

emily-sander_1_07-31-2025_151230:

Yeah.

snuffy_1_07-31-2025_151228:

be a.

squadcaster-f7a4_1_07-31-2025_151228:

Big time. Yep.

emily-sander_1_07-31-2025_151230:

Gotcha. How likely do you think this is I.

squadcaster-f7a4_1_07-31-2025_151228:

Hmm. How, how likely do we think a a, you know, a 2008 level crisis is at this point in time? I kind of put it on the same level. I mean, it'd just be a, have to be a systematic failure. And I guess I just, never failed to be surprised by stuff. Happening like that. I think we watched that

emily-sander_1_07-31-2025_151230:

Yeah.

squadcaster-f7a4_1_07-31-2025_151228:

unfold, you know, like, um, running into an iceberg, you know, like people could see what was happening to the average consumer being over leveraged, and, yet, you know, the system was still just propagating, you know, debt. So, again, I think that common thread is debt, right? Like it's, I think these things are gonna be, it's all about, you know, can be sustained as, as far as. service go, and as soon as that collapses, then the whole system kind of collapses. You

snuffy_1_07-31-2025_151228:

Yeah, historically, about every 10 to 15 years, there's a significant crisis. As Rory noted, it's normally driven around debt and the thought process going into it just prior to it is this time's really different because, and it's.

squadcaster-f7a4_1_07-31-2025_151228:

humans are different because,

emily-sander_1_07-31-2025_151230:

Yeah,

squadcaster-f7a4_1_07-31-2025_151228:

Yeah.

snuffy_1_07-31-2025_151228:

it was, it was one of, there's some classic joke that was like as soon as the barber, as soon as the barber started giving investment advice, that's when like Warren Buffet's, like I'm.

emily-sander_1_07-31-2025_151230:

yeah,

squadcaster-f7a4_1_07-31-2025_151228:

yeah. Yeah.

emily-sander_1_07-31-2025_151230:

that movie. Oh my gosh. It's a famous movie where. It has Jeremy Irons in it and he and like Demi Moore and all these people. And there's this famous scene where Jeremy Irons is like this head honcho, hedge fund manager or whatever, and he is eating, uh, like dinner at a really nice hotel. And this guy's freaking out like, aren't you scared that this big thing is gonna, is gonna happen again? And he is like, of course it will. It's like, what do you mean humans are humans? This is gonna happen again. This whole cycle that everything everyone thinks is the most traumatic thing ever, it'll happen again. I'm counting on it and it was just like,

squadcaster-f7a4_1_07-31-2025_151228:

but I mean,

emily-sander_1_07-31-2025_151230:

oh my gosh.

squadcaster-f7a4_1_07-31-2025_151228:

in life seems to be cyclical in, in most cases. You know, NA in nature and all of those things. So. maybe that's a human trait. Uh, I'm

emily-sander_1_07-31-2025_151230:

Yeah.

squadcaster-f7a4_1_07-31-2025_151228:

but you know, like, yeah, it seems to be we're old enough now where we've been through a few of these things

emily-sander_1_07-31-2025_151230:

Jesus.

squadcaster-f7a4_1_07-31-2025_151228:

back to it and say. Wow, this seems like it was before, you know? Um, it, but yeah.

emily-sander_1_07-31-2025_151230:

Yeah,

squadcaster-f7a4_1_07-31-2025_151228:

Um, and I guess humans are a hopeful species of, of, of beings where, to Ed's point, it's gonna be different in the future, it's gonna be different, it's gonna be different. With ai, it's, it's all good, you know, like, no worries.

emily-sander_1_07-31-2025_151230:

humans are a hopeful species. Um, let's round out, what do we hope for, uh, Seahawks preseason first game against the Las Vegas Raiders? With the new quarterback Gino Smith. Not quite the official game opener between Gino Smith and Russell Wilson. Remember that one when it opened our season, right when we traded Russell and then the first game they came to.

snuffy_1_07-31-2025_151228:

It wrote me off, but I didn't write back.

emily-sander_1_07-31-2025_151230:

Oh my gosh. And at that point I like I was. Hating Russell Wilson Pretty hard. I was like, I wanna see you get sacked so many times, bro.

squadcaster-f7a4_1_07-31-2025_151228:

man.

emily-sander_1_07-31-2025_151230:

You left in a got too big for your Britches

squadcaster-f7a4_1_07-31-2025_151228:

gotta stay

emily-sander_1_07-31-2025_151230:

Unlimited.

squadcaster-f7a4_1_07-31-2025_151228:

is

emily-sander_1_07-31-2025_151230:

I'm unlimited. Who do you think is gonna win our preseason game? I gotta vote for the hawks. Come on.

snuffy_1_07-31-2025_151228:

I, I actually. I actually think the Raiders are gonna win because

emily-sander_1_07-31-2025_151230:

No.

snuffy_1_07-31-2025_151228:

Carroll's gonna wanna win. And Mike McDonald, so Pete Carroll's got, Pete Carroll and Gino Smith have a reason to come in here

emily-sander_1_07-31-2025_151230:

True.

snuffy_1_07-31-2025_151228:

show that they made a mistake.

emily-sander_1_07-31-2025_151230:

True,

snuffy_1_07-31-2025_151228:

The folks that are here have a reason to not get injured and

emily-sander_1_07-31-2025_151230:

yes.

snuffy_1_07-31-2025_151228:

that we kind of play that. So I think I, I think it's gonna be the Raiders. I think Pete Carroll is, he's like one of the finest coaches of that. I've of. and I've been exposed to a number of coaches firsthand as well as, you know, kind of been a, a student of the game for a long time. He is one of the classiest,

emily-sander_1_07-31-2025_151230:

He is.

snuffy_1_07-31-2025_151228:

exceptional coaches. The only time I didn't like him was'cause I'm a Notre Dame guy, was when he was a Southern Cal. So I was glad he left, um, Southern Cal. But, you know, I, I would not mind seeing Pete Carroll go

emily-sander_1_07-31-2025_151230:

I,

snuffy_1_07-31-2025_151228:

with a, with a win at the end of the season or see the hawks and the Raiders in the Super Bowl. I'd like to see Pete Carroll successful.

squadcaster-f7a4_1_07-31-2025_151228:

cool would that be?

emily-sander_1_07-31-2025_151230:

that would be awesome.

snuffy_1_07-31-2025_151228:

but I, I can't root against the hawks, but I, I think Vegas pulls this one

emily-sander_1_07-31-2025_151230:

I met Pete Carroll once, did I tell you that?

snuffy_1_07-31-2025_151228:

No.

squadcaster-f7a4_1_07-31-2025_151228:

No.

emily-sander_1_07-31-2025_151230:

So we were at the, it was actually during G two and we were at one of the, our baseball games, like the work baseball thing, and we were playing against the. Like the facilities people of the stadium and to support the facilities people. Pete Carroll came and just played like one inning, and I like actually tagged him out and he was like, good ball, good job. And he like tapped me on the back and I was like, okay.

squadcaster-f7a4_1_07-31-2025_151228:

Hang. Wow.

emily-sander_1_07-31-2025_151230:

Yeah. And he was just, he was just doing that to support his people. He played like one inning, hit the ball, ran and then left, but

squadcaster-f7a4_1_07-31-2025_151228:

65 at that time

emily-sander_1_07-31-2025_151230:

Oh yeah. No, he was, I mean he was, you know,

squadcaster-f7a4_1_07-31-2025_151228:

so impressive.

emily-sander_1_07-31-2025_151230:

but I was like.

snuffy_1_07-31-2025_151228:

the only guy I ever met was the one at, at, it was at G two and it was Mike Holmgren at the QFC in Bellevue. Near

squadcaster-f7a4_1_07-31-2025_151228:

Oh, no

snuffy_1_07-31-2025_151228:

the office. Mike and Kathy Holmgren

emily-sander_1_07-31-2025_151230:

Who is hard to miss? He's a big man.

snuffy_1_07-31-2025_151228:

dude. Yeah, he is a big dude.

squadcaster-f7a4_1_07-31-2025_151228:

guy.

emily-sander_1_07-31-2025_151230:

he's a large man. Okay. All right. So we're going with, um, the Raiders are gonna win the preseason game, but the Seahawks are gonna play it safe and smart, not get injured so we can rock and roll in the official season. That's where we're, that's what we're landing with.

snuffy_1_07-31-2025_151228:

I think it was Consensus Sea go to the playoffs with the three of us. Right?

emily-sander_1_07-31-2025_151230:

Yep.

snuffy_1_07-31-2025_151228:

Rory

emily-sander_1_07-31-2025_151230:

we go.

squadcaster-f7a4_1_07-31-2025_151228:

No, I was on the, I was on the, I was on the bandwagon for sure. Yeah, yeah, yeah. I won't

emily-sander_1_07-31-2025_151230:

there.

squadcaster-f7a4_1_07-31-2025_151228:

the, I won't, I won't saddle this conversation with. Prognostications on the Washington. No ski. So we can, I'll keep that to myself, but yeah.

emily-sander_1_07-31-2025_151230:

We'll do that next time. We'll do.

squadcaster-f7a4_1_07-31-2025_151228:

Yeah. See you guys. Bye-Bye.

snuffy_1_07-31-2025_151228:

Doodles.