Introducing Capital Recycling: A New Asset Class for Public Markets

They appear when a structural problem becomes too large to ignore, and the existing market architecture has no mechanism to solve it.

The historical pattern:

1980s: LBOs emerged when corporations became bloated

• Opportunity: Companies trading at 8x EBITDA

• Solution: Leverage and operational improvement

• Returns: 20-30% IRR

2000s: Modern VC formalized when tech innovation outpaced capital

• Opportunity: Pre-revenue companies needing $5-10M

• Solution: Patient capital for exponential growth

• Returns: 10-100x on winners

2010s: Private credit filled gaps left by banking retreat

• Opportunity: Mid-market companies needing $50-500M

• Solution: Direct lending at attractive yields

• Returns: 10-15% with downside protection

Today: Capital recycling addresses $14-15T trapped in public markets

• Opportunity: 10,000+ companies at 0.1-0.6x NAV

• Solution: Systematic unlock and reallocation

• Potential returns: 300-800% annualized IRR

The problem is structural, not cyclical

Zoom in on any single company trading at a discount to balance sheet value, and it looks like an anomaly.

Zoom out, and you see a pattern:

• Microcaps with cash exceeding market cap (30-60% discount)

• Biotechs with $50-200M runway but no pipeline

• Subsidiaries are worth more separate than combined

• SPAC remnants with no operating business (at or below cash)

• Conglomerates sitting on orphaned assets (20-65% discount)

• Companies whose liquidation value exceeds market cap (50-80% discount)

Conservative estimate: 10,000+ companies, $15 trillion in aggregate market cap, 40-60% average discount to intrinsic value, $3-5 trillion in implied value destruction.

None of this is cyclical. It's architectural. Public markets have no mechanism to recycle capital out of structures where it cannot compound.

Capital recycling begins where the system stops functioning

Private markets have mechanisms:

• PE: Buys at 12-15x EBITDA, restructures over 7 years, targets 12-15% IRR (declining from 20%)

• Venture: Invests pre-revenue, builds over 5-10 years, targets 3-10x returns

• Real estate: Refinances and recycles, targets 15-20% IRR

• Credit: Maturities force reallocation, targets 8-12% yields

• Public markets: Capital enters at any valuation, stays indefinitely, no forced recycling, value decays structurally

The opportunity is quantifiable:

Capital recycling cycle:

Entry economics:

• Acquire companies at 0.1-0.6x NAV

• Realize value at 1.0x NAV = 67% to 900% gain on arbitrage alone

• Redeploy into assets with 30-40% CAGRs

• Total potential: 300-800% annualized IRR

Why the world needs a formal mechanism

Modern markets are larger, faster, and more complex. But they are not better at recycling capital. If anything, they're worse.

Three trends made the problem acute:

1. Passive ownership dominance: Now 50%+ of U.S. equities. Great for diversification. Bad for accountability. Capital gets parked, not stewarded.

2. Shrinking pool of activists and operators: The number of active stewards is tiny relative to $15T of inefficiency.

3. Board and governance stagnation: Without pressure, boards rarely initiate recycling. Many haven't changed in 10-15 years.

This results in hundreds of billions of dollars sitting idle every year.

The role of a capital recycling platform

A capital recycling platform does not behave like a fund. Funds commentate. Capital recyclers operate.

Process:

1. Identify stranded value (0.1-0.6x NAV companies)

2. Unlock it (monetize in 6-9 months)

3. Redeploy it (into 30%+ CAGR assets)

4. Compound it (repeat the cycle)

5. Scale it (systematic, repeatable, high-velocity)

This is not activism. Not restructuring. Not special situations. Not private equity. Not arbitrage.

It intervenes well before a company is distressed and offers it a price premium rather than a price discount to take control and recycle its capital value

It's a new category because it solves a new kind of problem.

Why does this become an asset class, not just an idea

For something to become a real asset class, it needs:

• Structural inefficiency: ✓ $14-15T at 40-60% discounts

• Repeatable playbook: ✓ 6-9 month cycles

• Scalable capital allocation: ✓ 10,000+ targets

• Measurable outcomes: ✓ 300-800% IRR potential

• Institutions that formalize it: ✓ First platforms launching

• Clear narrative category: ✓ "Capital recycling"

Capital recycling meets every criterion.

The future is simple: capital must move

If capital cannot move, it decays. If it decays, inefficiency grows. If inefficiency grows, arbitrage appears. Where arbitrage appears repeatedly, a new asset class emerges.

By 2035, we envision:

• 20-30 capital recycling vehicles globally

• $5-10T in assets under management

• $120B+ in annual industry fees

• Standardized allocation in institutional portfolios

Capital recycling is the next major evolution of public markets. Not because it's fashionable. But because the system requires it.