Danielle DiMartino Booth, Columnist

Private Equity and Passive Investors Are on a Collision Course

Call it the latest in a long line of unintended consequences thanks to interest rates being held too low for too long.

July 6, 2017 at 6:00 AM UTC

Danielle DiMartino Booth, a former adviser to the president of the Dallas Fed, is the author of "Fed Up: An Insider's Take on Why the Federal Reserve Is Bad for America," and founder of Quill Intelligence.

Sitting on piles of cash.
Photographer: Xaume Olleros/Bloomberg

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In what can only be described as a perverse role reversal, mom-and-pop investors have piled into passive investments, hoping for decent valuations that produce stable returns at ultra-low fees. Moody’s projects that passive products’ market share of U.S. bonds and stocks will hit 50 percent as soon as four years from now, from 30 percent today.

Meanwhile, private equity, which made its bones producing outsize returns by moving in for the kill when there’s blood in the Street, is raising record sums even as valuations press historic highs. If anything, the Street is paved with gold, which presents a challenge to deploying the record $1.5 trillion in dry powder, or investable funds, private equity firms are holding globally.