1. Private equity faces its reckoning?
Over the past five years, US PE fund returns trail the S&P 500 by more than three percentage points a year; over 10 and 15 years, the industry has barely managed to match that index. Fund hold times have lengthened to seven years from five a decade and a half ago. Some $1.3tn of unvested “dry powder” waits as the industry searches for good targets; over 40 per cent of it has been sitting idle for more than two years. Fundraising is set to decline for the third year in a row. Fees are under pressure too, as big institutional investors demand no-fee co-investment opportunities alongside participation in funds... Two decades ago, according to Preqin, the industry in Europe and the US managed $630bn. Today, it manages $6tn...Many buyouts in software — PE’s favourite industry during the boom times — are heading for restructuring as a debt maturity wall approaches. The shares of the big “alternative asset managers” that dominate the industry (Blackstone, Apollo and KKR) have had a poor year... Five years ago, when all financial markets were flooded with cash in the post-pandemic boom and rates were low, the private equity industry went on a giddy spree, paying high prices for companies and loading them with debt. Many of these companies have not grown as hoped. As their financing has reset at higher rates, the residual equity value represents an unacceptably low return. PE fund managers have largely avoided exiting these investments, which would crystallise the poor results, hoping for a profit renaissance or return to low rates that look equally unlikely to arrive.
2. This graphic is the clearest indication that politics in the US is becoming similar to that in the developing countries, as 88% of the electorate are extremely concerned about corruption.
3. Good graphical summary of how China has come to dominate manufacturing, gradually moving up the value chain.
China’s annual investment in transport infrastructure is 2.6% of GDP. That is a far lower share than after the global financial crisis of 2007-09, when it reached 9% as the country unleashed a massive stimulus package. But it remains strikingly high compared with, say, America, where the outlay was just 0.6% of gdp in 2024. By the end of last year, China had built more than 50,000km of high-speed rail, about 70% of the global total. It plans to build another 20,000km by 2035—roughly 1.5 times the length of such tracks in operation in Europe... Since opening its first expressway in 1990, China has built about 200,000km of such whizzy roads (see map)—about twice the length of motorways in America. There are now about 270 commercial airports, three times as many as in 1990. America has twice the number, but the gap is narrowing—China is adding half a dozen entirely new airports a year.
So how is this being used?
A lot of China’s new infrastructure is underused. Fast rail services in poorer inland regions have more empty seats than, say, the highly profitable line from Beijing to Shanghai... Commercial airports have a similar problem. Between 2019 and 2025, 43% of them saw a drop in traveller numbers (not counting airports newly opened since 2019)... In 2023 China had just under 1,800 vehicles for each kilometre of motorway, far lower than the ratio in most rich countries... In small poorer cities, rail stations and airport terminals are often colossal—built in extravagant ultra-modern style to awe visitors... Local authorities have borne much of the cost of building expressways and local sections of rail. Local-government debt held in off-balance-sheet vehicles may amount to 72trn yuan, or 51% of GDP.
5. Recursive self-improvement (RSI) AI, where AI keeps improving AI applications, is arriving rapidly. Anthropic recently published a chart showing how much of its AI research and development is being done by AI, thereby raising risk of AI development getting out of control.
It took a whole village of Claudes to produce the data in this chart. A Claude agent dug through the company’s Slack messages and internal documents to identify 15,000 tasks of AI R&D work. A Claude detective investigated exactly how that work was done. Then a Claude judge weighed the evidence and rated the work on a six-level scale, from no AI to fully autonomous AI... The most telling bars are the ones in orange for “AI leads,” meaning it performs most of the R&D while a human supervises—the fifth of the six levels. A year ago, AI led none of this work. As recently as March, it only led 1%. By August, Claude was leading 26% of the work on future Claudes. And that number is almost certainly higher today. Even as the company’s researchers delegate to AI, it’s worth remembering that 0% of this work is being done entirely by AI. It still hasn’t reached the sixth level of automation. But at this rate of progress, AI taking us out of the loop might just be a matter of time, computing power and the decisions of human beings inside the labs.
6. Good long read in Mint about how Waree Energy's solar module manufacturing facility in South Gujarat has run into problems of effluent emissions polluting ground water and local water bodies and inviting opposition from the locals.
7. Fascinating caricature of the Victorian elite education.
Most socially elite Victorian boys began formal education at the age of seven or eight, spending about five years in a ‘preparatory school’ before passing on to a ‘public school’ (which, to the enduring confusion of international observers, is a kind of elite private school)... Most students at both preparatory and public schools were boarders, meaning that elite Victorians were generally sent away from home by the age of eight and spent their childhoods more with peers than with family. In this respect they were distinctive even in their own time: elite families in continental Europe and the United States were far more likely to keep their children at home and educate them at small local private schools. It is plausible that this contributed to the lack of subnational loyalties in the British elite, in contrast to the distinct elites of, for example, the Southern United States, Catalonia in Spain, or Hungary in the Austrian Empire. The public schools were of course single-sex, generating a somewhat febrile atmosphere in which intense quasi-romantic (or sometimes actually romantic) relationships between boys were common... Demonstrative affection remained normal in adult life, and it was completely standard for pairs of Victorian men to walk arm-in-arm in public.Academic life was dominated by Latin and, to a lesser extent, Greek. The exact share varied, but the classical languages took up generally at least half of teaching hours, and sometimes as much as 80 percent, especially earlier in the century. Trailing in third and fourth places were mathematics and modern languages. There was resistance to the teaching of science, not because Victorians were hostile to science in principle, but because they thought it irrelevant to the kind of moral and cultural formation that a school for gentlemen was supposed to provide... The most that can be said for Victorians’ classical education is perhaps that, like schooling in any difficult subject, it trained students in self-discipline, memorization, and applying rules... The focus on character formation led to increasing interest in how students spent their time outside the classroom... During the Victorian period, school authorities introduced programs of organized sports, chiefly cricket in summer and various forms of ‘football’ (including what became rugby) in winter. Many schools ultimately had four, five, or even six afternoons of sports per week: a student would certainly spend ten hours a week on the sports field, and might well spend twenty. The Victorians thought extremely highly of sports, believing that they instilled team spirit and endurance, fostered mutual loyalty, channeled energy and competitiveness, and taught men how to win and lose graciously. An extreme but not entirely unrepresentative example was Hely Hutchinson Almond, headmaster of Loretto School, who described his school’s priorities as ‘First – character, second – physique, third – intelligence, fourth – manners, fifth – information’...
Oxbridge tutors believed overwhelmingly that the purpose of an undergraduate degree was neither training for work nor even preparation for academic research, but rather a general moral and intellectual formation that would fit students for any professional role they might later pursue. ‘No man will be a first-rate physician or engineer who is not something more than either, who has not some taste for art, some feeling for literature, or some other interest external to his profession’, said Benjamin Jowett, the influential master of Balliol College...
By one definition, then, elite Victorians did remarkably little work: they could easily spend just four or five hours a day actually in the office. But by another definition, they were working all the time. Lunches, balls, and dinners were certainly fun, but they were not just fun. In the words of the historian Leonore Davidoff, these social occasions provided ‘access to a vast information network: information about jobs, investment possibilities, secret political decisions’... The distinctive feature of elite Victorian lifestyles was not laziness, but an extreme weighting toward what we might call team building and professional networking, and the near-total fusion of personal and professional life... The sociologist Ferdinand Tönnies famously distinguished Gemeinschaft – community, held together by ties of sentiment and tradition – from Gesellschaft – society, held together by explicit laws and contracts. As societies grow more complex, he thought, Gesellschaft tends to replace Gemeinschaft. But the Victorian elite was a little Gemeinschaft at the apex of an enormous Gesellschaft, an intimate community bound together by ties of common culture, shared memory, intense status competition, loyalty, and love. Its members strove for one another’s envy, esteem and gratitude, and to achieve this they would go far beyond what was contractually obligated or financially advantageous.
8. MS Sriram has a good assessment of the Narasimhan Committee (II) recommendations.
9. The pension reform challenges facing France and Europe.
French voters enjoy both one of the world’s longest life expectancies and some of its earliest statutory retirement ages. Reaching pension age in the country is widely considered a rite of passage into a second phase of life dedicated to travel, hobbies and leisure that, for the luckiest, can stretch well into three decades. As a result, voters have fiercely resisted government policies designed to make them work longer. A recent government report revealed that roughly one-third of the Education Ministry’s budget is siphoned off to cover pension checks for former civil servants. At the Interior Ministry, which oversees policing, pensions absorb 30% of total departmental spending... French Finance Minister Roland Lescure said raising the nation’s legal retirement age—now between 62 and 64—was mathematically unavoidable...Countries including France, Italy and Spain rely on pure pay-as-you-go financing. There, state pensions replace between 74% and 82% of previous earnings. Unlike in the U.S., where more than $35 trillion in private retirement assets sits in stocks and bonds, employees’ pension insurance contributions flow directly into the pockets of retirees. These contributions exceed 27% of gross wages in France and 33% in Italy. When borrowing costs surged during the 2010-15 eurozone sovereign-debt crisis, Greece, Italy, Spain and Portugal pushed through some pension cuts. In 2011, Italy lifted its retirement age to 67 and linked it to life expectancy. Spain lengthened the wage history used to calculate payouts. Greece slashed pensions by up to 40%. France, however, largely stayed put. When Macron pushed a bill progressively raising the retirement age from 62 to 64 in 2023, he had to bypass parliament without a vote, triggering months of street clashes, burned trash heaps and nationwide transit strikes. That reform has since been put on hold.In a second camp, Northern European countries have developed hybrid models that economists generally see as more sustainable. Denmark, the Netherlands and Sweden combine a basic state pension floor with quasi-mandatory workplace pension plans invested globally. Pension assets in these three countries range from 100% to 200% of gross domestic product. This is comparable to the U.S., but the funds are managed by nonprofit industry trusts that convert accumulated savings into lifetime annuities rather than lump sums. This model delivers guaranteed income support, high retirement benefits and large pools of risk capital that help build national wealth, Kirkegaard said. But it also requires longer working lives: In Denmark, the retirement age is linked by law to life expectancy and is projected to pass 74 for younger cohorts around 2070.The third group, comprising Germany and the U.K., sits in the middle. The U.K. runs a low, flat state pension paired with automatic workplace enrollment into private funds. Germany’s system is also pay-as-you-go but pensions are substantially lower than in neighboring France, and monthly payments are capped. Germany also uses an automatic formula that slows benefit growth when the contributor-to-retiree ratio worsens.
10. One industry where Indian firms had a leadership role is in motorcycles, at least in the developing country markets. Hero Motors, Bajaj, and TVS have been leaders, holding more than half the market in Africa. Now, their dominance is being threatened by electric-bikes, where they have been laggards. They are noe facing compeitition from the likes of Spiro, which assembles motorcycles in Africa using Chinese kits and components while building a battery-swapping network to support their use.
TVS said in February that Africa accounts for nearly 70% of its export volumes and more than half of its global operational revenue. Analyst estimates suggest that about a third of Bajaj's exports go to the continent. While Spiro's current sales remain smaller than the combined volumes of the Indian manufacturers in Africa, the growing electric motorcycle market means a rising share of incremental sales is coming from a segment in which Bajaj and TVS are not yet active. Both companies have established electric vehicle businesses in India, led by scooters. Bajaj has said its first electric motorcycle is expected in FY28, with export markets likely to be its initial focus.
11. AI industry fact of the week.
AI-related debt issuance is likely to exceed $600bn in 2026, up 10-fold from 2024.
12. The Irish paradox.
The resources available to the state stand in stark contrast to many of the country’s European peers. Next year, Ireland expects a budget surplus of nearly €10bn at a time when France, Germany, the UK and others are battling painful deficits. Such fiscal good fortunes are the result of a fivefold increase in corporation tax revenues over the past decade paid by a handful US multinational tech and pharma companies. Almost half of Ireland’s corporation tax haul comes from just three companies: Apple, Eli Lilly and Microsoft. A quirk of international accounting allows the government to collect tax from companies even if they produce their goods elsewhere, provided they manage intellectual property in Ireland and have a real presence in the country... The country’s economic fortunes have rarely been better, with rapid growth and billions in tax revenues in its coffers.Yet many of its people feel worse off than ever. More fundamentally, many worry that the sources of Ireland’s wealth are fragile and that it is not making best use of its windfall. Housing is far from the only problem. Much of the country’s infrastructure and services — including transport, health, water and energy — are decades out of date or simply insufficient for a population that has increased by 10 per cent since 2020. Despite record levels of employment and average wages growing faster than prices, a recent opinion poll found 51 per cent in Ireland were finding it “a lot” harder to manage. Nearly 18,000 people are homeless — a record figure. Ireland has the highest electricity bills in the EU, and the value of household energy arrears is going up... Ireland’s health service has more than 1mn people on hospital waiting lists for the first time. The capital city of a country famous for its rain is running out of water amid delays to a landmark project.
And this about the tenuous tax balance.
Ireland now charges 12.5 per cent but big companies have to pay a top-up to 15 per cent under OECD rules agreed in 2021. The government says that will bring in another €3.5bn a year. Such trends have made the country dependent not only on the revenues from a few companies but also on their signature products: Eli Lilly’s tirzepatide, Apple’s iPhone and computers and Microsoft’s software applications. If their contribution to corporation tax receipts is stripped out on the basis that it is a potentially transitory windfall that cannot be relied on, Ireland looks dangerously like it is living beyond its means. The government estimates that €23bn of next year’s corporation tax receipts are related to activity abroad that is taxed in Ireland. Without that, Ireland would have been running a deficit since 2022 and would face a budget hole of more than €13bn next year, rather than a surplus of nearly €10bn. By the end of the decade, the country could be €20bn in the red.
When faced with such windfalls, fiscal profligacy is never far away.
Irish Fiscal Advisory Council, the fiscal watchdog has no issue with the government’s capital expenditure plans. But it has been fiercely critical of Dublin’s “blistering” overspending. Far from sticking to the 5 per cent limit in spending growth it announced in 2021, the government has increased spending by 10 per cent on average in each of the past five years, the Fiscal Advisory Council says. With cash at its disposal, the government has resorted to additional spending in between budgets, for goals such as easing fuel price rises after large-scale protests this year, even though pumping cash into an expanding economy can feed inflation.
But it is also saving for the rainy day.
Ireland has set up two sovereign wealth funds and has hired the former head of Norway’s fund, Knut Kjaer, to help oversee them. It has committed to saving 0.8 per cent of GDP every year into the Future Ireland Fund, which it will not be able to touch until 2041, and will also pay €2bn into the Infrastructure, Climate and Nature Fund every year until 2030, although it can draw on that earlier... By the end of the year, Ireland will have accumulated €23bn across the two funds.
13. Sarah O'Connor argues that the AI labour market problem may be one of entry rather than exits. In other words, it may be less about people in occupations losing jobs to AI, but those more exposed occuptions shrinking by way of reduced entry.
Occupations threatened by technology shrank over time because fewer young people were hired into them, rather than because existing workers were ejected from them. This was true for Victorian boot-making, for example, where research by academic Hillary Vipond shows the arrival of boot-sewing machines led to a “collapse of entry into artisanal boot-making” rather than the mass displacement of artisans. This is also largely how technology helped to hollow out routine manual and cognitive jobs over the past half century. A study of labour market flows in the US between 1976 and 2018 found that, outside of recessions, outflow rates from routine employment were pretty unremarkable. “Instead, declining routine employment overall is largely due to declining inflow rates for those who used to find employment in these occupations,” the authors wrote.
14. Janan Ganesh get many things right in this assessment of populists. It is interesting that the only surviving populists are those who have never been in power, like in Germany and France.
15. This graphic captures the scale of the repudiation of the Trump presidency.
After losing the national vote for the House of Representatives by two points in 2024, Democrats are on track to lead Republicans by more than 12 points — the largest swing in their favour in over 75 years... In Seward and Finney counties, Kansas, where Trump won by more than 30 points in 2024, voters picked Democratic Senate candidate Adam Hamilton over his Republican counterpart Roger Marshall.
JD Vance and Rupert Murdoch have squarely blamed the Iran war and by extension Trump for the election debacle.
Sean Hannity, one of Trump’s staunchest defenders, was asked whether the election would have turned out differently had the president not gone to war with Iran. “One hundred per cent. I don’t think there’s any doubt about it,” he said. Laura Ingraham, another longtime Trump loyalist, said the conflict had been “really tough and not well explained”. The shift comes as Republicans begin to reckon with the scale of their electoral defeat. It raises questions about the future of an alliance that has helped sustain Trump’s dominance of US conservatism over the past decade. The Wall Street Journal blamed Trump’s “erratic and self-indulgent” second term for squandering a “rare chance to advance the cause of conservative reform”.
This is what the WSJ headline spoke.
The Iran war, gas prices and Trump’s miscalculations led to one of the most decisive repudiations of an American president.
This is what is spooking the AI trade.
The top five states for data centre building are all now governed by Democrats with a hawkish bent when it comes to new construction of server-filled sheds. That political arrangement could affect 45 per cent of planned data centre expansion, Goldman Sachs reckons. Curbs on new building, already in place in New York state, are likely to proliferate. Out of 47 local votes on data centres counted by Redbud Consulting, at least 38 came out in favour of restrictions.
But this may actually be the rightly needed sand on the wheels of the out of control AI spending.
16. The AI bubble in one graphic.
17. After the tech rout of Thursday, Robert Armstrong makes some important points.
The case against panic starts with the fact that, if we were in a classic FOMO market riven with euphoria, it ended a while ago. The biggest US semiconductor companies peaked in early October or, as in the case of Micron, well before that. The memory hardware companies, which have risen even more than the semis, peaked back in June. The industrial stocks most associated with the data centre boom have been falling steadily since May.The point is that the election has accelerated a process that was already in place. Risk has been coming off the table for a while, and until yesterday, in a reasonably orderly way. At some point, we can hope, the AI complex will find a new equilibrium, and the market can go on about its business — at a meaningfully lower level, perhaps, but without an all-consuming crash. Remember that the economic fundamentals underlying the market remain strong, as witnessed just this week by solid Jolts, jobless claims, and ISM manufacturing and services surveys. Earnings growth, even outside of technology and energy, is solid too, and share performance outside of tech has been improving in recent months. None of this is a guarantee against a market collapse, but has to make one less likely.
He has four questions for the foreseeable future.
Are there signs of investor capitulation outside of tech stocks, that is, a widening (as opposed to a deepening) of the equity sell-off? Are there any signs of emerging macroeconomic weakness that could reinforce the troubles in the equity market? Does the confidence of the leading companies in AI crack, as expressed by abandoned plans to raise and deploy capital? For example, will Anthropic indefinitely suspend their plans to list? Despite persistent inflation and sound macroeconomic data, do bond yields take another major leg down from here, foreshadowing a slowdown? If the answers to those four questions are no, the equity market should be OK.
18. India-China trade facts of the week.
In FY20, the year India walked out, it bought $65 billion of goods from China and sold ~$17 billion, a deficit of $48 billion. In FY26, it bought $132 billion and sold $19.5 billion, a deficit of $112 billion, according to government data... The trade body Global Trade Research Initiative (GTRI) found that in 2023–24 about half of India’s imports from China were capital goods and machinery, and 37% were intermediate goods such as chemicals, drug ingredients, and plastics. The electronics numbers are sharper. A report in September found that China supplied at least 80% of India’s imports in 71 electronics product lines in FY26, up from 44 in 2018–19. Electrical machinery alone accounted for $43 billion of the deficit, about 38% of the total, while India’s exports in the same category to China were $3.2 billion. China supplied 83% of India’s lithium-ion battery imports in FY26, worth $4 billion, more than double the level of 2021–22.
See also this.
Private-equity funds, such as Temasek, Blackstone, TPG, and KKR, which have collectively invested over $15.5 billion in healthcare in India over the last five years. Of this, 60% went to hospitals.
