The explosion in VC capital has been primarily driven by a reach for yield among institutions, endowments, pensions and sovereign wealth funds. All of this money is extremely sticky, and once allocated will take 10+ years to de-allocate. So really the only way we see private equity funding collapse is if public equities quickly crater, forcing endowments to rebalance to stay in their allocation mandate.

And that could possibly happen, given how rich public equity valuations are. But the reality is the modern Fed is never again in our lifetime going to let nominal stock prices fall by 35% or more like they did in 2008. The traumas from the GFC are simply too ingrained in the current generation of central bankers and policy makers.

If push comes to shove and equities hit a bear market (20% drawdown), the Fed is going to turn the liquidity faucet to max. The forever war against Covid gives them a convenient excuse. In the scenario, you'll probably just see the Fed let inflation run hot at 10%+ for a few years. Again the Covid transitory narrative gives the cover.

Also, where else would they invest this money?