How insulated is the clean energy sector from global macroeconomic headwinds? – by David Riester
Current global macroeconomic data strongly suggests a significant portion of the world is currently in a recession, and that much of the rest will likely follow shortly. High inflation rates coming out of the pandemic put central banks and policy makers in a very difficult spot – between the "rock" and "hard place" of i) allowing inflation to remain high, and ii) pushing economies into recession. The United States is, perhaps, the easiest example, but dozens of economies around the globe are in essentially the same pickle. The US raised interest rates very sharply, inflation has started to come back under control (which, in isolation, is good), and unemployment has held steady at wonderfully low levels. For now. But whether one looks at the “yield curve”, private market fundraising trends, or headline-grabbing layoff announcements, a down cycle of one shade or another seems highly probable.
*this is an “inverted yield” curve, which signals that investors expect the economy to get worse
But this isn’t The Economist, so I’m going to try to focus only on macroeconomics where it directly affects the clean energy sector. The assumptions underpinning this article are that i) most of the world will be in a recession shortly, and ii) inflation will be higher during this recession than in most recessions, possibly producing a particularly troublesome recession variant (“stagflation”). If you reject that premise, I envy you and hope you’re right, but perhaps choose alternative lunchtime reading.
When the first dominoes fell in 2008 (circa Bear Stearns’ collapse), I was on the investment team at a venture capital firm, and I’d never been through a significant downturn as an adult. For the first time, I observed denial collide with intractable economic realities… and the fascinating game theory that plays out in the wake of that collision. Every voice, it seemed, in Silicon Valley touted some variation of the same mantra: “This will be bad, but it shouldn’t affect the _____ industry very much.” Everyone thought they were insulated, or at least that if we all claimed as much to each other very loudly it would be a self-fulfilling prophecy. That smelled very fishy to me, but I was just a kid… and like everyone else I really wanted that to be true… so I lobbed my voice into the echo chamber.
That is, until the “tombstone deck” came out, at which point everyone surrendered to reality… very abruptly, and all at once.
The infamous “tombstone deck” was a leaked presentation that alpha-dog VC firm, Sequoia Capital, gave to all its CEOs in a frantically-scheduled (NetJets had a good day) all-hands meeting. If a Powerpoint presentation has ever perfectly embodied the act of pulling the wool from people’s eyes, this was it. The message was, essentially: “Things are not ok. You are not ok. Panic is appropriate. Batten the hatches, and do it fast.” In Silicon Valley, folks deconstruct a Sequoia partner’s Starbucks order, so a provocative presentation screaming a message diametrically opposed to the “industry line” was like a nuclear bomb. Literally overnight the entire innovation sector of the United States downshifted about 4 gears.
I think about that a lot these days, because many of us are saying similar things about the clean energy sector being insulated from this economic cycle. Might we experience a similarly abrupt change in sentiment and behavior?
There’s plenty of sound logic behind the belief that clean energy’s secular momentum will overpower cyclical headwinds. Yet, I sense a lot of denial and delusion in the air. As with many things, the “right answer” is probably somewhere in the middle: The clean energy sector will be deeply affected on an absolute basis, though probably considerably less than most global business sectors on a relative basis.
In an attempt to keep this from becoming an economics lecture, this paper will boil things down to the three most “concrete” macro phenomena likely to have a direct effect on the clean energy industry: 1. Inflation (and exchange rates), 2. Interest Rates, and 3. the “Denominator Effect” (more broadly: capital supply).
Inflation in and of itself doesn’t worry me that much, for three reasons:
- Recent inflation in our sector was largely circumstantial. Clean energy was especially exposed to COVID-driven supply chain disruptions because most of the equipment used domestically is procured from overseas. Add to that price hikes resulting from the Auxin self-sabotage and the Uyghur Forced Labor Protection Act, and you have yourself an outlier set of circumstances. Will some of that persist or re-emerge? Yes. Was the 2020–2022 experience the “new norm”? Nah, even a cynic like me can’t seriously think that.
- Traditional, cyclical inflation emerges when the economy is really cooking. I don’t think the underlying fundamentals of the global economy are going to be that way for the next few years, so when the circumstances described in number 1 fade, so will inflation within clean energy.
- We were all part of a real-world experiment that unfolded over the last 2+ years, wherein the cost of solar increased dramatically due to COVID/Auxin/UFLPA. This experiment revealed that the “price elasticity of demand” – how much demand for something changes when the price changes – for clean electricity appears to be low. In layman’s terms: when COVID + Auxin caused EPC costs to rise sharply, PPA prices increased commensurately, but the demand for those higher-priced PPAs remained reasonably strong. Though price elasticity of demand is not static across economic cycles (so we should be careful not to deduce too much from one instance), this was heartening, to say the least. Faced with uncertainty and price increases, the ultimate customers of clean energy remained very interested in the product. This “experiment” doesn’t tell us about customer demand shifts when both i) rising prices for clean energy, and ii) a broad recession stack on top of each other; in 2021 the economy was humming along pretty good despite COVID. Nevertheless, I think it’s completely reasonable to be emboldened by what we’ve seen over the last couple of years.
But I’m more concerned about inflation’s cousin: exchange rates. As a market highly reliant on imported goods, this phenomenon may very well prove acutely challenging.
The strength of a currency relative to another currency (an exchange rate) is highly correlated to their relative inflation rates. If the dollar is experiencing high inflation, but at a rate that is lower than, say, RMB, then it’s likely that fewer dollars would be required to get a fixed amount of RMB, and vice versa. So far during this period of global inflation, the dollar has, by and large, experienced inflation on par (or even a touch below) the global average.
However, through the lens of US Dollar money supply and foreign demand for those dollars, there’s plenty of cause for concern that the purchasing power of the USD will decrease. I admit to being a bit of a “debt-hawk”, and considerably more fearful of “de-dollarization” than most – including plenty of people who are more informed on the topic because they focus on this area professionally. So take my catastrophizing with however many grains of salt you must... but even if my nightmare comes ¼ true, what I’m about to lay out in a two-paragraph tangent would have a lot to say about our experience as American renewable energy professionals for, well, the remainder of our careers.
Recent turmoil around the world has created a “safe haven” window, wherein holders of value around the world prioritize perceived safety. This is often described as a “flight to quality”. This sort of transient, psychology-driven phenomenon often has the effect of covering over fundamentals that would otherwise drive currency weakness. There’s a lot of evidence that this is happening right now for the US Dollar. Many would argue that this has been happening for half a century to varying degrees. The US has been printing money at an unprecedented rate, for one, and our “current account” – essentially our trade balance (deficit) – has been diving to breathtakingly large negative numbers. Last year alone it was about –1 trillion. So that means we needed to borrow about that much last year to pay our “tab.” We do that by issuing federal debt. Because the US Dollar is the world’s primary reserve currency, we have the good fortune of being able to do that at low costs (interest rates). And then we print money to pay people back. But nothing guarantees the continued viability of that little game. In fact, if anything, it is guaranteed to end. Historically speaking, countries hold “top dog” status for 50–100 years. We’ve held it since the Bretton Woods Conference in 1946. When such status “breaks” there’s a lot of inflation and currency devaluation in the aftermath. The dollar’s grip on the world economy is so comprehensive that abrupt “de-dollarization” feels practically impossible. A slow “leak” of the dollar’s dominance and value is, however, a lot easier to imagine, and a lot harder to withstand given how much pressure from our national debt and USD money supply (printing money) has accrued. For what it’s worth, the JP Morgan’s and Goldman Sachs’s of the world agree. The image below, taken from Ray Dalio’s book “The Changing World Order”, illustrates a pattern that’s hard to appreciate within the “blink” of a single human lifespan, yet is rather predictable over the long-term.
Image credit: Dalio, Ray, “The Changing World Order”
Why am I talking about changing world orders in a paper on the clean energy sector? Because it would severely disrupt our ability to procure components, due to dramatic reductions to the “purchasing power” of the dollar. When people talk about the importance of a domestic manufacturing market, it’s usually a i) jobs, or ii) energy security angle. I’ll leave those rabbit holes for another day, and just note that perhaps in the end, the reason we’re glad we invested in the domestic manufacturing sector is because we may not be able to afford components sold in other currencies. Whenever our fiat currency does fall apart – and it will, eventually – we’ll struggle to buy components manufactured abroad and sold in foreign currencies. Of course, when this day arrives, we may have bigger concerns than renewable energy deployment, but I hope it’s still on the list. And if it is, we will be awfully glad we stood up a dollar-denominated manufacturing sector. Over the long arc of history, few ever see these power and reserve currency transitions coming, because it happens about once in everyone’s life. The arc is too long, so at the human level there’s no instinctual pattern recognition. This asks too much of our imaginative powers. Most humans experience one such transition in their lives. None of us have. We (quite literally) can’t fathom how that would happen, so it is dismissed as unrealistic. Therein lies the problem. Anyway…
Should a high inflation environment persist, one strategy is to own uncontracted/merchant power plants. The reason is simple – with high inflation, prices are going up (including electricity prices), and the way to ride that increase is to not be in a long-term contract. The same approach should be useful in an environment where the dollar is getting weaker, although the hedge is less surgical, diluted by other factors that affect exchange rates. If you’re not able to own operating plants, this is still a relevant perspective in that you might develop a project a bit differently. Perhaps it’s prudent to wait a bit longer to work on an offtake contract, in case you find a project buyer that rather likes it in its uncontracted state? At Segue, we’ve already noticed increased interest in merchant exposure.
To summarize, what I think will happen is the that the inflation we’ve already experienced due to [post-covid supply chain] + [demand froth] will continue to fade; and even if it doesn’t, the clean energy sector will be resilient to inflation in and of itself. However, if the inflation is part of a broader devaluation of the US Dollar, making it hard for us to procure and import foreign components due to worsening exchange rates – we are in a real pickle. When, exactly, this comes to pass is impossible to predict, but if history can be trusted it’s getting close, and we would do well to plan a little bit. One does so by 1) rooting for and supporting the build-out of a domestic supply chain, 2) owning uncontracted assets that sell a commodity subject to inflation, and, 3) considering some currency hedges (no, not you, crypto; I mean currencies that have genuine utility and a palatable climate footprint).
Of course, in response to all this inflation, the Federal Reserve has been raising interest rates very sharply to try and rein in the inflation. When central banks like the Federal Reserve lift their interest rates, it creates a domino effect across all asset classes wherein i) virtually all lending institutions raise their interest rates (in part because of their own borrowing rate, and in part because of their opportunity cost of capital), and ii) other providers of capital increase their expected returns (read: “cost of capital”). This all boils down to opportunity cost. An extreme example for the sake of illustration: If you’re Santander, and the SOFR in Europe is 11%, would you ever write a note at an interest rate of 4.5%? Nope. You’d lose money. If you felt the risk and the duration were approximately the same, the cheapest you’d ever lend money would be 11.01%.
But the domino effect keeps going. Let’s say you’re the Abu Dhabi Investment Authority – one of the largest pools of money in the world – and the European Central Bank is offering 10 year bonds at 11%, how interested would you be in making a riskier equity investment in, I don’t know, an operating solar plant wherein your expected return is 9.5% levered with a comparable weighted average life? You wouldn’t. You’d require a substantial premium above the 11% “risk free” rate.
So, the entire “efficient frontier” (something I wrote about at length if you want to go deeper) slides up. Clean energy’s sector specific efficient frontier looks something like this:
An Illustration of The Scalar Cost of Capital Shift (When “Risk Free” Rates Change)
When central bank interest rates go up, the efficient frontier scalar shifts upward. Everything gets more expensive, because the foundational “risk free” rate started a logical domino effect.
I got into solar in 2009, which means my entire solar career has benefited from low interest rates. I can’t claim to have direct experience with how this industry functions when prevailing interest rates are higher. In fact, absolutely no one can make that claim, which is mind-blowing. Solar wasn’t an asset class that attracted institutional investors at any scale in the early 2000’s – the last time interest rates were where they are today. Perhaps there are some old-guard wind project finance professionals that have some experience to offer on this. One thing I do know is that it doesn’t work as cleanly as the illustration above (or the concept of a simple scalar shift) suggests. Even just looking at the last 13 months (the rising rate period), it’s clear that our sector’s costs of capital are not moving anywhere near lockstep with the “risk free rate”. Since last April, that rate has risen nearly 5%. Are loans 5% higher? Are equity return targets 5%+ higher? No, the increases have been nothing close to that. This probably has a lot to do with that inverted yield curve I started with, and the general view that interest rates won’t stay high for too long.
The US clean energy sector has always had this muted correlation with risk-free rates. Since 2009, I’ve kept a log of the key terms received for all 1. Perm debt, 2. Construction debt, 3. Tax equity, 4. Cash equity, and 5. M&A valuations that I’ve been close to. Unfortunately, rates haven’t moved around much during this period, making it difficult to extract empirical, statistically significant correlation. Here’s what that graph looks like for perm debt and target equity IRRs:
Briefly, for “Equity IRR” I include only domestic transactions/projects where an arm’s length transaction established a valuation with a corresponding implied target IRR. Given the strategies of SunEdison and CCR during my years there, most of the projects/portfolios I financed were “retained”, with no market-based cost of equity discovery. That’s why the data is skimpier for the equity line.
My takeaways are:
- There’s a very clear and rather steady decrease in the cost of capital, but it was not driven by falling “risk-free” rates. Rather, sector maturity, increasing performance data, larger projects attracting cheaper capital, persistent growth of “ESG” mandates, etc. offered a steady, secular tailwind.
- Usually when rates increased, “margins” (or “spreads”, if you prefer) compressed inversely, keeping the all-in debt rate fairly stable. In other words, the base rate elasticity of loan interest rates is quite low.
- Equity and debt costs tracked each other quite closely. Same “beta”, different “alpha” for the stat nerds.
There’s one critical reality that will mark the end of number 2 above and force a higher correlation with central bank rates (at least in the debt community): there’s no more room in margins/spreads to absorb rising interest rate “shocks”. In 2010, when rates jumped up for a few months, I was working on a recovery zone facility bond financing wherein the spread was almost 400 bps. That’s just where we were back then – capital providers wrongly believed there was considerable “technology risk”, and the check sizes were so small that folks would only lend/invest if their vig was worth it. When rates shot up in the weeks leading up to close, the bond underwriters mostly held the line on the all-in rate, choosing to reduce their spread instead of risking a dead deal. I’ve seen that movie play out a handful of times over the years. But spreads are around 100bps (or even less) these days, which is incredibly low. Frankly, it’s tough to argue that 1% is an appropriate return delta in the context of the incremental risk between a 10–year US T-bill and a senior note on an operating solar plant. Folks are making that case, and I think that’s wonderful… but we must be just about at the asymptote – margins/spreads aren’t going to come down materially from there, if at all. That means all-in interest rates are going to have to rise if base rates go up.
How big of a deal is that? The cleanest way to isolate that cost is to express it in terms of 1) required PPA rate increase to hold the same project margin, or 2) required cost reductions required to hold the same project margin. I pulled up a model for a plain vanilla 50 MWac PV project in a state with moderate irradiance (+ high IX costs), and did the math, solving for a .05/w margin:
A 1 percentage point change in the perm debt rate requires either (not both) a $3.75/MWh (~7%) PPA rate increase, or a $0.043/Wdc (~11%) reduction to costs. The same deltas for a change in equity return requirement are considerably less (a 3–4% improvement in either PPA rate or project costs), which is a function of equity being a much smaller component of the capital stack.
I walk away from that with the sense that interest rates surely matter; but, provided there is elasticity in the PPA markets or general inflation in the electricity sector, we can absorb interest rate increases unless they are especially extreme. I think our fears with regard to interest rates might be a little outsized, especially given further near term rate hikes may never arrive. After all, this piece is initially being published the day before the fed is expected to announce no change to rates – a possible “crest” or medium term high-watermark, if you will.
The Denominator Effect and Capital Supply
On the topic of business cycles, everyone talks about inflation and interest rates. Which is fine. But we are in an extremely capital-intensive sector, and interest rates are not an adequate proxy for the availability of capital, which heavily influences the health of a capital-intensive sector like clean energy. It’s not just “how expensive is the money?”, but “how hard is it to find money? How flexible is it? And is there enough money to pay for the amount of stuff we need to buy if we are to achieve our growth goals?”.
So, what is this “denominator effect” thing? It’s actually really simple… almost frustratingly so. Here goes: think of the universe of capital out there as broadly being split between public markets and private markets. Public markets are highly liquid markets with good price transparency/discovery. These are stock markets, commodity markets, fixed income markets, derivative markets. Private markets are the opposite. These are hedge funds, private equity (including venture capital), much of the real estate market, the private infrastructure sector (e.g., many IPPs)… anything not traded on a liquid exchange. They are less (or un-) regulated, and subject to different accounting standards and practices. Now, there’s a second way to split the universe of capital – “institutional” vs. “retail”. Institutional sources of money are pensions, endowments, foundations, sovereign wealth funds, professionally run “family offices”. Retail investors are individuals/families. Historically, institutional capital hovers around 50% of the world’s capital supply. Here’s a look at how the world’s capital is split across that 2x2 matrix:
Most institutional capital pools are managed by a Chief Investment Officer and a team of investment professionals that support them. Their mandate is established by a charter, of sorts, and their bosses are usually an “investment committee” that operates much like a Board of Directors would for a corporation. If you’re a CIO or on the investment team, you only control so much. Importantly, you’re given a target “asset allocation”, and some rules about how you can invest within those buckets. To give you an example, here is the combined target asset allocation for the top five college endowments over the last 20 years (“Absolute Return” is a fancy way of saying hedge funds, which are private investments. “Private Equity” includes venture capital).
Composite Target Asset Allocation – Top 5 College Endowments 
Of those categories, absolute return, private equity, and most of natural resources and real estate are private markets, and the rest are held in public markets. An investment team at an institutional investor is given target asset allocations and an allowable tolerance around each target. Within each bucket all they really do is “pick managers”. Not stocks – you pick the people who pick stocks (or bonds, or VC investments, or timber investments, etc.). Their primary task is to maintain the target asset allocation. Because that they do control, and “market timing” is frowned upon, so don’t get cute. The best way to get fired if you’re running an institutional pool of money is to miss your asset allocation targets.
But here’s the tricky bit: your public investments buckets are drifting around in value every second. These are “marked to market” because they are on transparent, liquid exchanges with near-instant price discovery. But your private investments are not. They are re-valued from time to time, sure, but the rules around this are rather vague, the methodology applied to re-value these holdings are subjective, and the frequency of re-valuing is, most commonly, quarterly. So… in a market downturn, what happens? Most of your public buckets drop in value as it’s happening, but your private investments barely budge, and where they do it is delayed. This is further exacerbated when private markets are not generating much liquidity – as is the case right now. Most institutional pools of money rely on these nest eggs for operational purposes, drawing a fixed percentage (5% is common) every year. They don’t control the amount of cash coming from the private investments; when there isn’t much, they have to make up for it by selling down public market holdings. These two phenomena combine such that the denominator (total assets) drops because the public investments drop, but the numerators for the private market asset allocations move far less. Public asset allocation percentages plummet from market value reduction and sales (to generate liquidity where it’s available), and private asset allocation percentages balloon because book value stays comparably flat. The denominator effect.
Why does this matter? Because it leads to extreme reductions in new capital commitments to private investments. An institutional CIO can’t do much about their book value in private equity vehicles they committed to years ago. (If they stop meeting “capital calls”, they risk losing any/all value in those vehicles. These provisions/penalties are draconian as hell). All that CIO can really do is stop making any new commitments to private funds. Which is what tends to happen in down cycles.
Why does our sector care? Brace yourself: in the clean energy infrastructure sector, 85% of our capital arrives through private investments and 72% comes from institutional investors through private vehicles – the category affected by the denominator effect. Fresh, new, investable capital is all we really care about. Those old funds are mostly spoken for. That money is spent. We care about the “dry powder” of committed, but uninvested private capital, most of which comes from institutional investors. In a downturn, the denominator effect causes a dramatic slowdown in the creation of dry powder.
If you’ve been wondering why you’ve been hearing a little less from those infrastructure funds recently, there you have it. That big dark green box is increasingly freezing up our capital market “breadbasket” due to the denominator effect, or fears thereof. Sure, many private equity vehicles have a lot of uncalled capital in existing funds, but if they sense a fundraising dry spell around the corner, most private fund managers will treat uncalled capital as a precious commodity to be “stretched out”. The bar goes up. The money gets more expensive. The aggressiveness fades. Quite simply, there’s just… less money out there to be had.
Everyone knows the best time to invest is when markets are down; when many other would-be investors are scared and frozen. And, to some extent, there are pools of capital that respond accordingly, partially filling the void. But time and time again, regardless of the data and the commonsense axiom “buy low, sell high”, psychological stubbornness (read: “fear”) and the denominator effect combine to keep private capital markets tight during a macroeconomic decline.
And generally, no sector is spared. Asset allocation math is blind to the secular tailwinds like those clean energy enjoys, and so are most institutional investment mandates/charters. They don’t say: “…but hey if your instinct tells you to make an exception for sector XYZ or asset class ABC, throw those rules in the trash and do whatever you feel”. These are rule-based systems designed to protect against human nature. Let’s look at what happened during the Global Financial Crisis:
2009 through 2012 saw the least amount of new investible capital creation this millennium. So far in 2023, the denominator effect is walloping the private capital markets similarly. Q1 of this year was the worst quarter for private fund closings in over eight years. The place where 85% of our capital comes from is at its worst in almost a decade. If the experience of 2009 repeats, our capital market would shrink by 35–40%. I don’t care how much of a darling industry we are these days, 35–40% is going to leave a dent.
Of course, it also creates a massive opportunity for capital providers subject to less rigidity. There’s no fundamental change to the quality of the investment opportunities within clean energy. Demand inelasticity (and the IRA) is likely to hold the quantity/size of potential investment opportunities on an upward trajectory. I see fields of fertile soil ready to be tilled and seeded by our many talented developers/builders, then watered by the capital providers with capital to deploy. For years those fields have been drenched with water from the thousands of overly exuberant investors/lenders jockeying for a hectare of turf… I think in the years to come those with a watering can will have some space.
The macroeconomic conditions of the moment are a rather odd soup, making it awfully difficult to calibrate strategy to the conditions of the market. But don’t delude yourself into thinking the clean energy sector is immune to a weak global economy. There are certain immovable objects that, if in play, affect all participants in the sector:
- Devaluation pressure on the US Dollar: though the USD’s entrenched position protects against severe shocks, weakening purchasing power might still be a massive problem.
- Interest rate increases have, historically, not ruffled too many feathers in clean energy, but spread compression can’t save us anymore, so we must be prepared for the cost of debt to rise if the risk-free rate does.
- The denominator effect is a quiet assassin already leaking air out of our capital supply balloon. It lurks a couple layers away from the front lines, but is real, powerful, and especially problematic for a sector as reliant on institutional capital invested through private funds.
“Ok Dave, you successfully scared the **** out of me, congratulations… but what would you have me do?”
Perhaps I’ll close by sharing a little bit about how Segue is positioning for a downturn:
- We are careful with regard to project value assumptions, assuming that the frothiness of the last decade is going to recede for a while. We still believe quality assets will have a good buyer, and that the valuations will be palatable… if not quite as bloated as many have been since the dawn of the yieldco era.
- Our “bar” for making an investment is higher. We can already feel that our corner of the capital markets is substantially quieter and less aggressive, and that our capital/product is increasingly in demand. We don’t believe it’s good business to be vultures, but at the same time we have a responsibility to be especially picky at a time when we have choices.
- We’re leaning in the direction of patience with regard to offtake contracting, believing merchant projects are increasingly attractive in the current setting.
- We are not expecting as much enterprise value realization at the company level. The “platform” acquisition era is going to lose some steam; we are betting that buyers shift focus back to hard asset value. Overpaying for a dream and a headline is a boom times luxury.
- We’re assuming that tax equity tightens up as corporate profitability drops, and are underwriting to tax credit sales as opposed to full TE structures. We are all going to be very, very glad transferability made it into the IRA – the flexibility it offers with regards to which years’ profits are offset, and how easy it is to utilize profitability in sectors not known, historically, for their tax equity prowess… will be vital.
- We are more willing to lean into supply chain (specifically long-lead-time) risk than we were last year, believing that lead-times are going to improve as the demand/supply gap narrows, at least a little.
- There are going to be more dead deals and folks “left at the altar” by capital providers who get cold feet or can’t get a deal through committee; for asset monetizations Segue is being a bit stingy with exclusivity period length, and requiring earnest money deposits. It’ll be more important than ever to identify real, committed, convicted buyers with a track record in the space.
- We are investing in groups that have shown resiliency through challenging periods; when evaluating investments with newer teams that have only known “good times”, we look for humility with respect to their experience gaps.
- We expect companies with capital to deploy and the confidence to invest into a wobbly market – albeit carefully and with high standards – will create a lot of value (and/or generate exceptional returns).
- We’re prioritizing developers who focus on quality over quantity, and substance over form. We are entering a “fewer, nicer things” phase.
We’ll get through this. And we should be grateful for the momentum we carry into what will probably be a global recession. But now is a good time for our sector to show some maturity by accepting the reality that global macroeconomic headwinds will affect us mightily… even if less than some other sectors.
 I’m going to fail
 LevelTen quarterly reports Q3 2022, Q4 2022
 See Dalio, Ray, who is my primary influence on this topic. Those who have read his work in this area will note I’m essentially parroting him.
 Not our national debt. That’s $31T. I’m talking just last year’s deficit.
 And yes, I absolutely intend to rewrite this section if things go differently.
 https://www.institutionalinvestor.com/article/b1x3361d00f4g1/The-Institutional-Share-of-Global-Capital-is-Shrinking-What-Does-This-Mean-for-Managers (they say it’s 48%), https://www.bain.com/insights/why-private-equity-is-targeting-individual-investors-global-private-equity-report-2023/ (They say it’s 49%)
 Data from IRENA also used to establish the mis between retail and institutional investors in private markets
 They could also sell their interests in older vintage funds on the secondary market, but they’d take a big loss, and it’s difficult to do this efficiently and/or at scale. No one wants to be selling their private investment portfolio on the secondary market during a down cycle.
 IRENA “Mobilizing Institutional Capital For Renewable Energy”, 2021
 Prequin data
 Not “creation” but realization (value capture via monetization)