PRIVATE CAPITAL
The return identity. Every condition acts on these five terms
entry · exit · earnings growth · leverage · hold period
A return is manufactured by moving these five. Everything below is what moves them.
▼ what builds each term ▼
Entry
Buying below what it will later sell for. Disciplined selection.
Exit
A deep, mixed buyer pool with real competition for the asset.
Earnings growth
Operating improvement and organic growth across the hold.
Leverage
Debt magnifying the equity return on the earnings gain.
Hold period
Realising when value is built, not when a buyer finally appears.
▼ conditions move those terms · two tiers, read differently ▼
Field conditions · read from the world the position runs in, not set by the funder · a temporal arc: finance the buy (F1) → carry the hold (F2) → find the sale (F3)
F1
Debt access
Whether debt is available to carry the deal at a workable price, or the equity must fund the whole purchase.
MovesEntry, through the financing cost: how much debt does the work
When it tightensThe equity cheque rises toward the full price. The return must now come from earnings alone. The same buyout is a different machine under the same name.
Work-around none. The condition has no structural fix. It is accepted or avoided.
F2
Funding continuity
Whether fresh capital arrives to carry the company to its sale, or it is forced to realise early or fail before the value is built.
MovesHold period, and whether the earnings build finishes or is cut short
When it thinsFresh capital stops arriving on time. The company is forced to sell early, raise at a punishing price, or run out of money. Unlike a thin exit, the asset itself can disappear.
Work-around insider bridge. Existing investors become the next round themselves; the risk relocates onto their concentration in a position that may be failing.
F3
Exit depth
Whether real buyers compete for the asset, or only other funds pricing off their own exit maths.
MovesWhat you sell for, and how long you wait to sell
When it thinsThe sale multiple compresses and the hold stretches. Time eats the return even when the company performed well.
Work-around permanent capital, chosen up front so a buyer is never needed. The constraint relocates to the funder's own illiquidity.
F4
Asset density
Whether there are enough good targets to choose between, or so few the choice is made for you.
MovesEntry, through competition, and whether you can be selective at all
When it thinsScarce assets and abundant capital bid entry up, and deployment pressure becomes self-inflicted adverse selection.
Work-around none. No structural fix. Lower your standards, change market, or wait.
F5
Intermediation depth
Whether advisers and operating talent can be hired deal by deal, or must be carried on your own bench.
MovesWhat it costs and how reliably you can move every other term
When it is thinAdvisers, diligence, and the people brought in to run the company must be carried in-house, on scarce and look-alike talent.
Work-around internalise it. The constraint relocates onto scarce internal talent that binds harder.
F6
Enforceability
Whether a paper position holds when contested, or is only as good as the other side's goodwill.
MovesThe fraction of every other term you can actually realise
When it is weakA paper position is worth less than it reads, and you only find out how much less when you try to enforce it.
Work-around securitisation. The constraint relocates to the legal isolation holding when tested.
Funder conditions · read from the funder of the position, not the world
H1
The clock
Whether the funder needs cash on a schedule the deal's realisation point will meet, or on one that arrives first.
MovesHold period directly, and through it, the exit price taken
When it misalignsA schedule the funder owes someone else can force a sale at year two of a four-year build, and the return is set by the calendar rather than the deal.
Work-around continuation vehicle, reached for when the clock runs out on a buyer you did need. Become your own buyer to escape the fund's finite life.
H2
Objectives
Whether the funder wants only the return, or also goals the return identity does not contain.
MovesWhich terms get chased at all, and what counts as success
When it divergesThe vehicle is paid partly on a goal the return identity never contained, so the same five terms are no longer the whole scorecard.
Work-around none. You cannot engineer around what the funder is for.
A note on the funder: this is the GP or vehicle that holds and runs the position, not the LPs behind it. The clock and objectives are often set in part by those LPs, but that upstream layer is its own separate piece. Either way the condition is read from the funder, not the market, so the line above holds.
↳ strategies are outputs of the conditions
Each keys to the condition that generates it. Asset density (F4) and intermediation depth (F5) generate none. They move every strategy's return without defining one.
Direct lendingNeeds recovery real & enforceableF6
Distressed-for-debtNeeds recovery predictableF6
Venture debtNeeds the next equity round to arriveF2
MezzanineNeeds senior debt & rights both holdingF1·F6
Distressed-for-controlNeeds rights enforceableF6
Controlling buyoutNeeds debt available to carry itF1
Minority growthNeeds rights enforceableF6
Corporate acquisitionNeeds a reason to own beyond resaleH2
Early-stage ventureNeeds the next round to arrive and mark upF2·F3
↳ working around a missing condition relocates it · ordered by the condition it answers
The work-around never removes the condition, only relocates the risk to a single narrower point. Some conditions cannot be worked around at all. Whether a condition can be worked around does not sort by tier: F1 and F4 (field) have no fix, while H1 (funder) does.
Securitisation field · enforceabilityManufactures enforceability where institutions do not supply it. The risk moves to the legal isolation holding when tested.
Permanent capital field · exit depthChosen up front so a buyer is never needed. Manufactures liquidity tolerance for a missing exit, and the risk moves to the permanent illiquidity of its own capital.
Internalised intermediation field · intermediation depthManufactures the ecosystem a thin market lacks by building it in-house. The risk moves onto scarce internal talent that binds harder than the market did.
Insider bridge field · funding continuityExisting investors become the next round themselves to avoid a punishing one. Manufactures the continuation capital the market stopped supplying, and the risk moves onto their own concentration in a position that may be failing. It is the same become-your-own-counterparty move as the continuation vehicle, one step earlier.
Continuation vehicle funder · the clockReached for after the fact, when the clock runs out on a buyer you did need. Manufactures a buyer to escape the fund's own finite life, and the price is now set by the one party on both sides of the trade.
Three questions to ask · the name tells you what each position needs; these ask whether it holds
The position
Do the conditions its name depends on still hold, or has it become something else the name still fits?
→ reads as sustainable, converting, or foreclosedThe frame
Is the market you are judging it against the one you assume, or a different configuration you have mistaken for the standard?
→ reads which setting of the conditions you are inThe escape
Where a structure looks like it escaped a condition the market could not supply, what single point now carries it, and does the approach still hold if that point does not?
→ reads the work-around's single narrower point
Strategy sustainability · field conditions decide whether it runs in this market; funder conditions decide whether the funder still runs it to its return
SustainableThe conditions it bets on hold
Every condition the strategy depends on is present at the level it needs. The strategy is the machine its name describes, and it compounds.
ConvertingA condition it bet on is moving
The strategy still runs, but a condition it depended on is moving. It is becoming a different machine while keeping the same name, and is mispriced exactly here.
Field route: a market condition it bet on is weakening. Funder route: the funder's clock or objectives diverged, so the same five terms are no longer the whole scorecard.
ForeclosedA required field condition is absent
A field condition the strategy cannot substitute around is not there. The strategy cannot be run in this market at all, whatever its merits elsewhere. Only the field tier forecloses; the funder tier converts.
⚠ The one real boundary · where the apparatus stops applying
This holds for capital negotiated & structured for one company, deployed through a vehicle whose return is the position's return, with rights used to steer. It does not hold for public shares, index exposure, or standardised balance-sheet lending. The line runs by deployment mode, not by the kind of firm.
▼ and only if the position is inside the class at all ▼
The membership test · all three must hold, or the apparatus above does not apply
Negotiated & structuredbargained for the specific company, not taken off a market
Mandate-borne returnthe position's own return flows to its providers, not kept as a spread
Actively governedrights used to steer the outcome, not passive monitoring