This week's interesting finds

This week in charts

U.S. vs. emerging market equities – overvaluation

Most widely held stocks vs. the S&P 500 Index – forward price-to-earnings ratios

Magnificent 7 ownership

Passive flows

Active share

Mutual fund cash balances

S&P 500 Index by weighting – forward P/E ratios over time

Young adults living with parents

U.S. vs. Canada – home prices & income

Used car costs by province

Private equity fundraising slides as sector’s downturn deepens

Private equity firms are struggling to raise money despite offering unprecedented enticements to attract new investor cash, underscoring a sector-wide contraction that is denting the profitability of the industry.

Private equity groups raised just $592bn in the 12 months to June: their lowest tally for seven years, data from Preqin show.

The decline came even as firms offered more discounts such as management fee cuts, “early-bird discounts” for investors who commit quickly to new funds and other incentives.

They “are offering a smorgasbord of discounts”, said Marco Masotti, global head of private equity fundraising at law firm Paul Weiss, who added in a report by the firm that PE groups were “facing mounting fee pressure and agreeing to a cascade of discounts”.

The industry’s fundraising has shrunk by nearly a third from its record levels in 2021. Higher interest rates and a slowdown in dealmaking have left firms unable to sell trillions of dollars in ageing investments, causing growing frustration from investors, many of whom are now refusing to back funds. 

Accentuating PE’s challenges are a flurry of newer entrants into the industry in the decade after the 2008 financial crisis, leaving the market oversaturated. It had left a record number of funds chasing every potential dollar of new investment, consultancy Bain said in June.

“There are just too many private equity managers seeking capital out there. I just don’t know how else to say it,” said Masotti.

As a result, more groups are offering discounts, such as pledging to return the transaction fees that were once charged to their clients, as well as volume-based discounts and novel terms such as caps on some legal and travel expenses.

These types of enticements have reduced net management fees paid to PE groups by about half since the global financial crisis, Bain & Co. found.

Industry leaders had hoped for a resurgence in dealmaking this year, with the slowdown rooted in firms’ inability to return cash to its investors. PE groups only returned 11 per cent of the industry’s assets to investors last year, the lowest figure since 2009, Bain calculates.

“After three years with a lack of liquidity, the rule book for fundraising has been fundamentally rewritten,” said Richard von Gusovius, global co-head of distribution at the private capital advisory Campbell Lutyens. “The investors really want their money back.”

This week’s fun finds

Why Is Everything Spicy Now?

To put it generally and reductively, American food has not always been known for embracing spice. But now a large and apparently growing number of people in this country are willingly chomping down on fruits that have been expressly cultivated to bind to their body’s pain receptors and unleash fury with every bite. “It’s one of the great puzzles of culinary history,” Paul Rozin, a retired psychologist who spent much of his career studying spice, told me. “It is remarkable that something that tastes so bad is so popular.”

This trend, like basically every trend, is being driven by young people: According to a survey by NCSolutions, which helps packaged-food companies advertise, 51 percent of Generation Z consider themselves hot-sauce connoisseurs, and 35 percent have signed a waiver before eating something spicy. But it is also the result of a collision of several changes in the way Americans eat. Food costs are high, and the industry is crowded; spice can be a cheap way to produce flavor, get consumer attention, and mask less-expensive ingredients such as corn and chicken. New techniques have enabled manufacturers to tweak flavors much more easily, injecting spice into just about any mass-produced food: ice cream, lemonade, Gushers, boxed mac and cheese, the sandwich bread at Subway.

Immigration, the internet, cheap shipping, and inexpensive international travel have ushered in a truly global food era, one in which people are much more familiar with, and able to access, ingredients and ideas from the heat-seeking culinary traditions common in Asia and Central America. And at the same time, spicy food has also gotten better, moving away from the blunt-force trauma of what Dylan Keenan, who runs the online hot-sauce store Heat, described to me as “stupid hot stuff that didn’t taste good” in favor of more nuanced flavors: the back-of-the-throat burn of the Trinidad Scorpion, the lip-numbing kick of Sichuan peppercorns. The Reaper, despite sounding intense, still tastes more interesting than the pepper extract that used to supercharge hot sauces and snack foods; it’s sweet and a little fruity, supposedly, at least before the pain sets in. All told, spicy food is easier to make, easier to find, and easier to love than it was just a few decades ago.

The body’s spice receptors adapt over time, like feet get calluses. So spice creep is ceaseless and self-perpetuating: We’re getting used to spicier foods, so we are eating spicier foods, so we are getting even more used to even spicier foods, as though our taste buds are all on a flywheel that can’t stop speeding up. In 2022, responding to customer demand, Fly By Jing introduced an even hotter version of its Sichuan chili crisp, made with what its founder, Jing Gao, described to me as “the hottest Chinese chili you can grow.” (Xtra Spicy is now the company’s second-best seller, behind its original recipe.) At Heat, Keenan told me, sales of extra-hot sauces are growing faster than milder ones, and What’s the hottest thing that still tastes good? is the most common customer request. “I do think it’s likely that within a generation or two,” he wrote to me in an email, “the median American will be able to handle spice levels that would have sent a medieval peasant into anaphylactic shock.” Historically speaking, he pointed out, spice tolerance has only moved in one direction.

It’s true. The first person to eat a hot pepper probably did it somewhere in the lowlands of southern Mexico more than 10,000 years ago, and I would guess they probably thought it would kill them. But they went back for more, or at least they told their friends. Part of this is pure neurochemistry: Capsaicin, the compound that makes many spicy foods spicy, transmits pain signals to the brain, which the brain then counteracts by releasing endorphins—it’s like a runner’s high, except you can get it while sitting in your car outside of a McDonald’s. Rozin calls the phenomenon “benign masochism”: a little bit of pain, as a treat. “It’s bungee jumping and roller coasters and swimming in cold water,” he said, and it is a uniquely human impulse. (Imagine what would happen if you put a dog on a roller coaster.) “We somehow get a pleasure out of our body telling us not to do something, but we know it’s okay.” In the 1970s, when he was studying spice in Oaxaca, Rozin found that even children had learned to tolerate spice. When he offered the local pigs and dogs a choice, they picked bland food every time.

This week's interesting finds

Jason’s corner

To give readers a deeper look at our investment approach, Jason will provide insights we’ve learned from our active involvement in operating Cymbria’s private businesses. It’s a collection of pieces that include commentaries from Cymbria Annuals and other thoughts throughout the year.

Jason’s corner can be accessed from the dropdown menu under the Insights tab or from the Cymbria homepage.

S&P 500 Index vs. MSCI World ex- USA Index growth attribution

S&P 600 Index vs MSCI US Index – relative trailing P/E

Russell 2000 ETF flows

S&P 500 Index vs. discretionary sector – historical relative performance

OECD country income disparity

Crude energy index vs. S&P 500 Index

High-yield bonds vs. leverage loans – maturities

Mortgage rates

Toronto condo starts

Greater Toronto-Hamilton Area – Number of completed and unsold condo apartments

Canada vs. U.S. REITs - capitalization

The Condo Crash

Tajdin is one of thousands of Canadians who have been caught in the fallout of the country’s collapsing condo market. Many are middle-class buyers who fell victim to the relentless real estate hype machine. They were told that big-city condos were a surefire place to park their money—and they were the biggest losers when the floor dropped out of the market. Since peaking in 2022, condo values in Toronto have plunged by 16.5 per cent and in Vancouver by nine per cent. Those averages mask the much larger losses experienced by would-be investors like Tajdin. Now, many buyers are on the hook for mortgages they can’t secure. Others own condos they can no longer sell, sinking deeper into the red every month as their carrying costs exceed what they can charge in rent. And a growing number are finding themselves on the wrong end of legal action as developers seek to recoup losses by taking legal action against buyers who back out of presale agreements. 

Those developers, meanwhile, are unable to sell enough pre-construction units to finance new buildings. Many are entering receivership, postponing new construction and exacerbating an already painful housing shortage. Some are sitting on thousands of completed but seemingly unsellable units, built first and foremost as financial assets rather than functional housing.

The implosion has been most acute in Toronto and Vancouver where, over the past two decades, the condo boom reshaped skylines and transformed the very idea of housing. It was in these cities that condos evolved into something both more and less than homes: the ultimate financial asset, favoured first by rich investors and later by middle-class Canadians who plowed increasingly enormous amounts of personal wealth into them.

Real estate, especially in Canada’s most expensive cities, has for decades been considered a sure bet. For a long time, it was: since the 1990s, Canadian housing prices have gone steadily up, with only the briefest interruptions, even as naysayers and market pessimists came and went. Buyers became more deeply leveraged, and debt loads grew, but so did windfall profits and eye-popping flips. 

And so for years, more and more investors piled in, building their nest eggs in the sky. When the market nosedived, it was those same investors who shouldered the worst of the collapse, exposing the fundamental flaws in our housing system: rampant speculation, the pursuit of short-term profit over long-term sustainability, and a laissez-faire attitude from policymakers who allowed everything to spiral out of control.

This week’s fun finds

What It’s Like to Fly Bark Air, the First-in-Class Airline for Dogs (and Their People)

Bark Air launched in May 2024 as an offshoot of Bark; that publicly traded corporation that began its life as BarkBox, a subscription service for treats and toys that has since expanded into nearly all parameters of canine life. Really, pretty much all: They are slowly introducing a dedicated concierge arm of the company, Bark Air president Mike Novotny told me on a call this July, that will offer everything from road-trip itineraries and (truly) pet-friendly hotel recommendations to groomer advice and grief counselors. (Intriguing off-record plans are also afoot to partner with upscale hotels and travel agencies to help provide pet-friendly experiences and itineraries for guests on the go.)

Given that, post-pandemic, more and more people have been unleashed from regular office requirements—and have, in turn, chosen to prioritize both personal travel and the pets they now spend most of their time with—an airline that catered specifically to dog-doting global nomads felt like a hole Bark was built to fill. Their customer base was a demographic for whom the overhead compartment or the terrors of the cargo hold—where dogs have not infrequently, and as recently as 2023, died in transit—wasn’t going to cut it. Last year Bark founder and CEO Matt Meeker made a video of himself flying in a large dog crate between South Florida and New York to prove the misery of such conditions. “This really does suck,” he says as his crate is loaded into the belly of the plane. Later, in the dark of the cargo hold, jostled by turbulence: “No seat belts, no airbags—I don’t know why any person would choose to do this to their dog. It’s an absolute horror show back here.” Now, for around $6,000 and up one way, they don’t have to.

The price tag, which is almost the same per route as a seat on a shared private-jet charter like Aero, is about as low as it can be while keeping the operation afloat: The planes are chartered by Bark, not owned by them, and each seats an average of 10 or so guests. Each ticket is for one human and one dog, and it flies a limited schedule (i.e., four round trips from Van Nuys to Teterboro and back a month) between private airports in Los Angeles and San Francisco to New York, and from New York to London, Lisbon, Paris, and Madrid. (They will also, perhaps most notably, help you with all of the required paperwork for international travel with a pet—avoiding quarantine!—as part of their services.) Unlike other semiprivate charters, there are absolutely no size or breed limitations for dogs. Also, unlike other flight providers, everyone you speak to just really loves dogs.

Once I booked our flights, I was contacted by a concierge who asked about Hugo: his personality traits, his likes and dislikes, his vaccination records, his play style, his preferred music, and whether he likes the car windows up or down on the ride to the airport—which, in one of the many brilliant moments of minimizing pain points for the pet-toting traveler, they will also arrange. On travel day, we were picked up by a chauffeur (sign reading “Hugo,” radio playing the Beach Boys) and arrived at the treat-filled terminal in Van Nuys for check-in, where it was immediately clear where to go based on the wagging tails.

Inside the terminal a certified dog trainer kept an eye out, observing the attitudes and interactions of all the four-legged passengers in order to decide where they should be situated on the plane (dogs that show signs of overexcitement or aggression are separated, for example) and foster a seamless travel experience. “I take this flight twice a year, to take my dog to our place in Long Island and back,” one of my fellow passengers, an older gentleman with a small poodly type dog tells me, “and it’s the best, because everyone is so nice.” He waved his hands expansively. “You know, it’s all dog people.” I do know: There’s a certain camaraderie among the openly canine obsessed. You can really relax when you’re not worried your dog might rub up against someone who doesn’t want it or, ahem, drool on their leg while they’re eating their chicken Caesar wrap on board (not that Hugo or I know anything about such behavior).

Prior to boarding, passengers are given Bark Puppy Passports, preprinted with their dogs’ photos, and a handwritten ticket that has the order in which they will board the plane. We formed a merry parade of wiggling tails across the tarmac, pausing for a photo opportunity by the plane’s steps before a quick climb on board. All dogs are harnessed and seat-belted to their owners’ chairs for takeoff and landing, but if there is a nervous or snappy pup on board, one of the Bark concierges tells me, they have an array of fixes: calming treats, noise-cancelling ear muffs, a snoodlike pullover called a happy hoodie, and, in more extreme cases, gentle muzzles. Several of my fellow travelers (a mix of summer vacationers and those making more long-term relocations to the East Coast and beyond) confess that they have doped their dogs with a sedative, and we all discuss the merits of Gabapentin (lighter) versus the far more effective Trazodone. (Hugo, by nature mellow to a fault, has not taken any drugs, but happily accepts some melatonin calming chews during takeoff, likely because they are meat flavored.) A drugged shih-tzu-looking mix stares hazily into the middle distance between his owner and my seats for the next five hours straight, including for a photo opp in which he is adorned with a small blue captain’s hat.

This week's interesting finds

This week in charts

Small-cap stock returns

U.S. equity returns following Liberation Day

Markets reactions to the Great Financial Crisis

Valuation metrics across regions

Valuation range by country

Price performance – small-cap vs. large-cap

Price performance – growth vs. value

European index sales exposure

Domestic and foreign ownership of equities

European defence companies

This conversation is being recorded — and so is everything else you do in San Francisco

A crop of startups is selling stealthy AI-powered recording devices and software that’s becoming increasingly popular across Silicon Valley. Regardless of whether you’re in a contentious work meeting, having coffee on a first date, or enjoying the wild abandon of a house party, there’s a growing likelihood that someone is listening.

Some of these devices are wearables masquerading as fashionable pendants, like those made by Limitless, or discreet lapel pins, like those by Plaud. Bee has a device that resembles a Fitbit. Others are apps that run quietly in the background of phones and laptops, like Cluely, Granola, and OpenAI’s new ChatGPT Record feature.

It can be hard to know when one is being used. Some devices flash or light up when they’re recording; others glow when they’re switched off. Most automatically generate AI transcripts and audio recordings of everything with which their owner interacts.

Why would anyone voluntarily wear these roving surveillance devices? It’s not necessarily to catch people saying things they’ll regret. Enthusiasts report that the recorders help them stay “present” in meetings, outsource busywork, and act as a perpetually available collaborator.

But many who work in offices where the devices are becoming the norm report that they have begun to self-censor, worried about every offhand comment being etched into an AI-generated transcript. Meanwhile, lawyers warn that it’s only a matter of time before these nonconsensual records and audio files become liabilities in court.

The always-listening crowd

For many in the tech industry, AI recording tools have become a way of life.

But some users acknowledge that Silicon Valley’s newfound recording culture has them on edge. Even a confidential chat in the back of a coffee shop may not be safe.

Is this even legal?

The rules around recording permission differ by state. California’s wiretapping law requires everyone in a confidential conversation to give explicit consent before being recorded in situations where there’s a “reasonable expectation of privacy.”

For now, the responsibility for getting appropriate consent has largely fallen on users, with companies distancing themselves from legal liability. An OpenAI spokesperson told The Standard that users must get consent and obey local laws; the company encourages this by placing a grayed-out reminder — “ask before recording others” — beneath its red “record” button.

This week’s fun finds

Visiting from Montreal, relationship manager Raphaelle hosted a special moai where we could celebrate not only great food but the sense of family that makes us who we are. A culture that’s dear to her heart, she sees the same family spirit at EdgePoint that she does with her Italian family.

“Siamo una famiglia, sempre pronti ad accogliere chiunque voglia farne parte”.

“We are family, welcoming anyone who wants to be part of it”.

A Glowing Inflatable Canyon by ENESS Squeezes Inside Melbourne’s Prahran Square

Although it appears that thousands of tons of boulders have been dropped into Prahran Square in Melbourne, the enormous rocks are actually as light as air. Art and technology studio ENESS (previously) has installed its inflatable “Iwagumi Air Scape” in the park, creating an immersive canyon for visitors to wander through.

While the 16 massive stones have a grainy, granite-like texture during the day, at night, they glow in otherworldly pinks and yellows, creating a surreal landscape that illuminates the urban environment. Audio of flora and fauna accompanies the work, so that when viewers squeeze through what would be a treacherous pass between real boulders, the soft inflatables and mountain sounds wrap them in a natural embrace.

This week's interesting finds

This week in charts

S&P 500 Index price-to-earnings valuations

Weight of the largest stock in S&P 500 Index since 1981 

S&P 500 Index revenue per employee, by sector – 1991 vs. 2025

U.S. equity market – YTD returns, by sector

Capex growth – tech vs. sectors 

Magnificent Six costs – asset intensity vs. innovation

Technology, media and telecommunication sectors becoming more asset intensive

Capex growers relative performance

U.S. corporate buybacks

Investment-grade and high-yield bond fund flows

Youth Is Losing to Experience in This Job Market

There are plenty of signs that AI is making the job market tougher for young college graduates, but for the 22 million people with jobs that are categorized as professional and business services, wage growth has actually accelerated over the past year to levels solidly above pre-pandemic rates. This suggests that the state of the labor market for white-collar workers is best described as bifurcated — one where there are both winners and losers rather than one where most workers are worse off.

Despite the overall unemployment rate being a solid 4.2%, conditions for young workers are soft. Only 65.3% of 20- to 24-year-olds were employed last month, nearly three percentage points lower than the post-pandemic peak in January 2024, and roughly the same proportion as we saw in December 2008 following Lehman Brothers Holdings Inc.’s collapse. For the millions of college graduates in the 22 to 29 age group, the unemployment rate stood at 3.7% in the first six months of the year, compared with 2.8% in 2019, according to Current Population Survey data.

Such numbers are backed up by numerous news reports as well as comments from corporate executives on how they see AI transforming labor needs. Internship postings this spring were down. A recent Wall Street Journal report noted that the share of entry-level hires relative to all new hires has slumped by 50% since 2019 among the biggest technology companies, while another pointed to consultancy firm McKinsey putting together smaller but more experienced teams as it adds AI to the mix.

It’s also becoming more common for CEOs to talk about AI eventually leading to significant layoffs. At Meta Platforms Inc., Alphabet Inc. and Microsoft Corp., employee headcount grew 64% between 2019 and 2022 but just 3% over the past three years. This comes at a time when the three tech juggernauts collectively plan more than $250 billion in capital expenditures over the next 12 months, suggesting that there’s a tradeoff between investing in AI and hiring workers.

While the number of jobs in the professional and business services’ category of the non-farm payrolls data shrank slightly over the past year, wage growth accelerated to just above 5% in July. Compare that with 2019, when employment growth averaged 1.3% while wages rose 3.7%.

One explanation for this is that there are composition effects at work. If companies aren’t hiring young workers, who tend to be lower paid, we’re going to get lower employment growth in professional and business services along with increasing average compensation levels, which could overstate the extent to which older, more experienced workers are getting raises.

But there are reasons to believe some workers really are gaining from this phase of the AI boom. There’s the pro athlete-type offers being made to the select few engineers building new AI models. Outside the tech sector, there’s the experience of companies such as McKinsey, where “mediocre expertise” is going away while specialized expertise becomes more valuable in combination with AI agents. That dovetails with Nvidia Corp. CEO Jensen Huang’s prediction that workers who use AI will be fine in this transition.

It’s reasonable for all workers to be uncomfortable with a technological innovation that hasn’t disrupted most workers yet but where the ultimate outcome is so uncertain. There’s no guarantee that the next generation of AI models won’t come after workers with more advanced skills. It’s also a far cry from the technology boom of the late 1990s, which was accompanied by broad-based employment, compensation and consumption growth.

This week’s fun find

Photos of surfing dogs hanging ten in annual competition

The annual World Dog Surfing Championships took place near San Francisco on Saturday. Thousands of spectators flocked to Pacifica State Beach to watch pooches ride the waves solo, in pairs or with human companions. The dogs were judged on balance, time on the board and any tricks they performed.