Riffing on themes

Daily Data: A bonanza of private credit, SAAS KPI, Europoors, and Fab-makers

Market Recap:

• yay healthcare, boo semis and freight

In today’s dispatch, Random Walk does an endless scroll of sorts, with some riffing on themes:

• Private Credit is super-incestuous (and why that’s probably ok)

• SAAS companies are failing all their growth KPI (and why that’s probably ok too)

• Strong dollar makes Europoors

• AI is the capital cycle now, and Dutch tulip exporters fab-makers are breathing into paper bags

---

👉👉👉Reminder to sign up for the Weekly Recap only, if daily emails is too much. Find me on twitter, for more fun. 

Daily Data

Random Walk had a few different mini-essays written, all on familiar Random Walkian themes, so today, they come as one.

🚨🚨Another request: Please consider upgrading to a paid subscription. Random Walk costs less than an hour of Top Golf, and is much more fun. Plus, this takes a lot of work, and I’d love to keep doing it, but y’know, I can’t eat charts.

Market recap

Money moves from chips to healthcare (and bought the dip on utilities):

Big winner: United Airlines. United UAL 0.00%↑ reported that Boeing wasn’t their problem anymore, and the crowd went wild.

Big loser: Freight, Semis

• JBHT 0.00%↑ JB Hunt said that demand for intermodal freight is still bad. PLD 0.00%↑ Prologis said demand for industrial and warehouse space isn’t as good as they had hoped. Could be connected.

• Big name semiconductor cos NVDA 0.00%↑ etc. took a beating when ASML 0.00%↑ said there were fewer fab bookings than expected. More on that below.

Riffing on themes

IMF notices that Private Credit is “interconnected”

IMF points out that Private Credit is highly incestuous interconnected.

• Over 80% of private credit (by AUM) is managed by a PE manager.

• Likewise, ~70% of Private Credit loans go to PE-backed companies.

Look, there are some obvious reasons to get concerned about mega-PE managers raising huge credit funds to be last-resort lenders for PE managers and their portfolio companies. Putting aside potential conflicts of interests, risk becomes more correlated and opaque (i.e. “how exposed am I?” is an increasingly difficult question to answer). And correlated and opaque risk is the exact worst thing during a credit event.

On the other hand, Private Credit is (for now) dominated by a few mega PE funds—a flight to safety, if you will—so, of course, ~80% of AUM is going to be managed by a PE manager. Plus, it’s precisely the sort of PE-backed software company that can’t get a loan, who needs Private Credit.

The IMF did another neat chart that shows how Private Capital has basically traded big loans with high debt:asset ratios, for little loans with high debt:earnings ratios (IMF):

Private credit is lending to software companies, in other words, because they can, and because software cos need it.

Also, I’m pretty confident that more traditional asset-based lending is surely the new (old) frontier for the new banks to conquer, so things will get less incestuous over time.

The point is that the risk is definitely real—and those NAV loans are super-sketchy— but bigger picture, nothing nefarious or unexpected is going on.

The IMF also says that Private Credit isn’t big enough to be systemically risky (yet), but of course, it’s the nature of correlated and opaque risk that size is hard to ascertain . . .

Less retention, less customer growth, longer payback periods, no problem.

Public saas companies are fumbling all their traditional growth KPI.

No, really, look: