Key Takeaways

  • Columbia Investment Management Company re-underwrites buyout sponsors by stripping out cheap debt and multiple expansion from the return bridge, prioritizing operational margin gains.
  • Managing Director Erlina Yeo Terwelp and CIO Kim Lew shifted Columbia into HALO (high-asset, low-obsolescence) strategies five years ago to balance tech buyouts with durable tangible assets.
  • Higher borrowing costs have broken the zero-rate buyout model, forcing allocators to require proven EBITDA expansion rather than financial engineering.
  • In venture capital, Terwelp warns allocators against overloading the 2026 vintage as AI startups raise rounds at multiples of their valuations from six months earlier.
  • Columbia enforces vintage diversification across 2027 and 2028 to capture leading AI winners that emerge after the initial infrastructure cycle.

Stripping Financial Engineering from the Buyout Bridge

Zero interest rates allowed buyout sponsors to generate 20 percent net IRRs through cheap borrowing and rising exit multiples. That era is over. Erlina Yeo Terwelp points out that borrowing costs have rewritten the baseline math for institutional portfolios.

“The biggest one, particularly for buyout, is higher interest rates,” Terwelp states. “It makes the math different. It makes the growth of the companies more important. Being able to expand margins a lot more important. Do private equity firms that we look at have the ability to generate that value today?”

Columbia dissects every sponsor's track record into three parts: debt paydown, multiple expansion, and operating EBITDA growth. Sponsors who relied on rising market multiples or heavy debt face severe scrutiny in Columbia's underwriting model. Allocators now require hard evidence of pricing power, procurement savings, and operational execution. Sponsors must show they can build earnings directly rather than relying on market tailwinds to deliver fund returns.

The Five-Year Shift to HALO Assets

While many endowments spent the late 2010s maximizing software buyout exposure, Columbia took a deliberate counter-position under CIO Kim Lew. Five years ago, Terwelp helped tilt capital toward high-asset, low-obsolescence (HALO) assets.

“We're not just doing tech buyouts,” Terwelp explains. “We also have a healthy and growing amount of the high-asset, low-obsolescence type strategies, the HALO strategies, love that name. That was deliberate, so 5 years ago, we set out to build a portfolio that was durable in the buyout side.”

HALO businesses own physical infrastructure, essential equipment, or heavy asset bases that resist software displacement. They rarely trade at software multiples, but they generate steady cash flows that service debt comfortably in a higher-rate regime. Blending HALO allocations alongside selective software buyouts provided Columbia with balance sheet stability when private equity exit activity stalled.

Why Overloading the 2026 AI Vintage Fails

In venture capital, the main hazard is valuation inflation. Generative AI has compressed financing cycles, pushing company valuations to extreme heights within months. Terwelp cautions allocators against crowding capital into the current market top.

“Vintage year diversification has always been important in venture,” Terwelp says. “This year, in particular, with so many funds raising, with so many companies raising at valuations that are multiples of what they just raised about six months ago, you don't want to put all your eggs in a 2026 bucket.”

Columbia manages this risk by pacing commitments steadily across future cycles. Early waves of capital in major tech shifts often fund expensive experiments rather than lasting category leaders. “Where people feel good about AI, they are going to be fortunes made in this vintage,” Terwelp notes. “You want to be part of the '27 vintage as well. Maybe the next Nvidia is not going to be built till 2028.”

Why It Matters

Institutional allocators are separating genuine operating partners from financial engineers, leaving debt-dependent buyout funds struggling to raise capital. In venture, disciplined vintage pacing protects endowments from peak-cycle dilution while preserving capital for second-wave winners. Pacing and asset durability, rather than market timing, will dictate LP outperformance.