PE's favourite strategy is copying whatever just happened to work.

Private equity has a recency bias problem.

The last deal that worked quickly becomes the template for the next five.

One healthcare services platform performs well and suddenly everyone has deep conviction in fragmented healthcare services.
One software roll up lands nicely and now every mediocre vertical SaaS asset is apparently a strategic priority.
One home services deal gets bid up and suddenly half the market is pretending to have spent years studying HVAC, roofing, and pest control.

It is all very convincing in the moment.

Success in private equity has a strange way of being rewritten as foresight.

A deal works, and the industry immediately decides it was not one good investment made in a specific context.
No, it was evidence of a broader repeatable truth.
Now there is a playbook.
Now there is a pattern.
Now there is a sector thesis.
Now there are six more firms crowding into the same trade explaining why this time it is disciplined.

That is usually when the returns start getting worse.

Because what made the first deal good was often timing, price, or scarcity.

What follows is usually imitation at a higher multiple.

The first investor gets paid for being early.
The next five pay up for the privilege of calling it a strategy.

This happens constantly.

Private equity loves to talk about pattern recognition.
Quite a lot of what it really means is pattern overextension.

An idea works once.
Maybe twice.
Then people stop asking whether the conditions are still attractive and start assuming the shape of the deal itself was the edge.

It rarely is.

By the time an entire segment has become consensus, the easy money is usually gone.
Valuations are higher.
Sellers know the script.
Bankers know who to call.
Management teams know which buzzwords to use.
And suddenly a once interesting theme becomes an auction process with prettier slides.

The industry calls that conviction.

A lot of the time it is just delayed mimicry.

The best firms are not the ones that copy the last winner fastest.
They are the ones that know when a good idea has already been fully socially accepted by private equity, which is usually a decent sign the return profile is about to get much less interesting.

That is the problem with recency bias.

It makes the industry feel smarter right as it starts overpaying in formation.