If I'm analyzing a fund managers alpha I'm comparing returns of PE over other PE managers. Cross-asset comparisons aren't very useful. Hedge Fund vs. Hedge Fund, PE vs PE, VC vs VC etc...Saying that you earned excess returns in this perma-low rate environment (where valuations are infinity) over the S&P is just an admission that you took on an insane amount of risk and you happened to time it right because of luck and perverted incentive structures setup in this system. Greater fools theory.

But ya about everything else you commented on - the PE business is frothy for the underwriters, not the idiots with too much dry powder to know what to do with it.

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Posted by Texas Tea 123

Member since Sep 2017

234 posts

Posted on 10/11/21 at 6:46 pm to wutangfinancial

Someone asked something along the lines of "if they don't perform that well why do people still invest in PE?"

The answer is this: The people who's money it is aren't making the decisions. We're talking pensions, endowments, sovereign wealth funds, etc.

The people making the decisions on where to allocate these dollars are simply employees with often times no REAL skin in the game. Their job is to allocate, so they allocate.

The money in these pools of capital is not the money of the "allocators", the money belongs to teachers, police, blue collar workers, universities, citizens (by extension of sovereign wealth funds). They don't have a say in how the money is invested.

Moral Hazard in its finest.

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Posted by wutangfinancial

Treasure Valley

Member since Sep 2015

11442 posts

Posted on 10/12/21 at 8:46 am to Texas Tea 123

Ya, exactly. It's no different than IB and VC where the money is made on fees and they use absurd comps to juice valuations of companies that will never make money. Quite an amazing gig if you have the shiny degree to get in the door.

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