The Private Equity Pitch
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- Опубликовано: 8 май 2024
- According to Vanguard, private equity’s “significant illiquidity and market dynamics provide suitable investors the opportunity to earn long-term excess returns, while increasing portfolio diversification through expanded equity market coverage.”
This is the private equity pitch in a nutshell. It’s obvious theoretically that Illiquid assets in markets that are more difficult to access would have higher expected returns and opportunities for managers to add value by bringing new information to the market, possibly even enough to justify the high fees, estimated at around 6 or 7% all-in.
Timestamps:
0:00 Intro
1:26 Evaluating the performance of private equity is not straightforward
3:30 My bone to pick with the 2014 paper
6:09 Ludovic Phalippou’s insights to private equity
8:02 Testing the diversification claim
11:20 Main takeaways
Referenced in this video:
Private markets rally to new heights: www.mckinsey.com/~/media/mcki...
The Performance of Private Equity Funds: academic.oup.com/rfs/article-...
Private Equity Fund Debt: Capital Flows, Performance, and Agency Costs: papers.ssrn.com/sol3/papers.c...
Private Equity Performance: Returns, Persistence, and Capital Flows: onlinelibrary.wiley.com/doi/1...
Private Equity Performance: What Do We Know?: onlinelibrary.wiley.com/doi/1...
An Inconvenient Fact: Private Equity Returns and the Billionaire Factory: joi.pm-research.com/content/3...
Private Equity's Diversification Illusion: Evidence From Fair Value Accounting: papers.ssrn.com/sol3/papers.c...
Private Equity Fund Valuation Management During Fundraising: www.hbs.edu/ris/Publication%2...
Rush to Raise: Does Fundraising Pressure Incentivize Strategic Venture Capital Deal Pricing?: papers.ssrn.com/sol3/papers.c...
Interim Fund Performance and Fundraising in Private Equity: papers.ssrn.com/sol3/papers.c...
Replicating Private Equity with Value Investing, Homemade Leverage, and Hold-to-Maturity Accounting: academic.oup.com/rfs/article-...
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as always, a literature-backed no-nonsense perspective. Very much appreciated! keep them coming.
Your videos are truly amazing! The evidence-based antidote for any pitch, be it from friends or salespeople.
Thank you Ben. You seem to be a sensible voice in a wilderness of insensibility, and bots. We appreciate you! Keep up the great work.
Excellent video! I consistently forward your videos to friends/family so they can benefit also. The world would be a better place if everyone was so focused on truth, as opposed to rumor, speculation and self-serving manipulation of the facts. Thank you for what you do.
Excellent analysis. Very similar to the counter pitch of equities mutual funds vs TIF´s or ETF´s. At the end of the day, as you rightly mentioned, we need to know who gets what. Lots of fees for the managers, not much return for the investors, at least most of them.
Ben Felix, good to see you! We've been missing you and your great videos!
19 new millionaires created by private equity funds that was brilliant Ben. Thanks for being you if I could put you in charge of Canada's finance instead of the fools we have now I would. A Canadian financial gem Ben keep up the great work.
Timestamps:
0:00 Intro
1:26 Evaluating the performance of private equity is not straightforward
3:30 My bone to pick with the 2014 paper
6:09 Ludovic Phalippou’s insights to private equity
8:02 Testing the diversification claim
11:20 Main takeaways
Ben, could you consider doing a video on monthly income etfs such as ZMI, XTR & VRIF for retirees looking for income. I consider you as objective as they come, and I’m sure a lot of retirees have considered these, and would appreciate your thoughts
You forgot 0:56 : Smug smile. Hahaha
Ben, please do a deep dive into fine art as an asset class and the company, Masterworks, that is advertising this "investment opportunity" all across RUclips.
Open for Paid Promotion?
Hello. can you do a paid video promotion for us? I and sent an email already
This is gold. Thank you!
Wonderful, as always. Thanks for the straight-talk.
Best analysis on PE by far.
clear as day, as usual! great stuff
damn... I have invested some funds in exactly that. I thought when investing only small amounts in many startups, ill diversify and collect those risk premiums in the long run. Thank you for that video! I love this channel!
He refers to lbo, not Startup (growth funds )
Informative as always! Thanks.
Thank you for the video! Very clear and informative
Hi Ben. You do an awesome work and I look forward to this video also
Excellent video! Thank you for sharing this!
As always informative and important
Private equity, venture capital helpful videos thank you Ben! I'm learning new terms enjoy the new and existing videos. Podcast is equally helpful ✏️☕
Wow spam bots are busy!
There is literally no better notification than "New Ben Felix RUclips video"
Thank you so much Ben for this new comprehensive video.
I am used to spend time on your RUclips work: so, what's on Earth is better than a broad, cap weighted, low cost index fund?
Amazing content as always. Also sick hoodie
What’s this?
Great advice, thank you!
Bens back 🙌🏿🙌🏿🙌🏿🙌🏿
Ben, what a fantastic video!
As an analyst in the UK I can attest, private equity has definitely been an area of increased interest recently, at least with our clients. Really hard to fairly analyse compared to public though!
Amazing video, once again !
Great work!
Hey Ben, could you debunk (or otherwise) the art market as an investment strategy? There has been a push for it on various social media platforms like this.
Good content, nice hoodie.
Amazing and well presented information as usual. But the sound level is pretty low. I had to crank up volume from 40 to 100.
My only complaint about the video is there was no mic drop at the end. Probably one of your best post. I Love the peer-reviewed references and quantitative style. Can't wait for more!
As a PE professional myself, I sadly have to concur with you, although my livelihood depends wholly on LPs not believing you
Amazing video. Very curious if this is the same for private debt
Please make more videos. I understand why MM recommended you.
Ben, thanks for the content. I need some encouragement to stay invested in this period of falling stock markets. Tell me this time it is no different and prices will go up eventually 😊
You only touched briefly on leverage. As in your video on commercial real estate, leverage is the key to higher (risk-adjusted?) returns! You must consider sharpe ratio when looking at the effect of leverage on investments - not all leverage is created equally. A 2x leveraged investment on an asset with half the volatility of the S&P 500 will tend to have similar risk to the S&P, but may bear higher expected returns. I don’t know if this shows up in the math for private equity firms, but it’s certainly a factor in favor of commercial real estate.
Brilliant
Awesome video!
I don’t know how or why you are motivated to produce such high quality, high intellect, and high sincerity content for free… but in case you read this, thanks Ben.
And is in the darkest hour that our beloved hero re-appears
There is light. We shall live and prosper. Amen.
Good morning, great video. I am an enthusiastic new user of your channel and I appreciate your work so much. I would ask you, if possible, for a video explanation of CLOs, Collateral Loan Obbligation, a speculative instrument not well known but also used by large charities to finance ordinary activities and other cash-oriented investors. Thanks
Always the hero we need to cut through the nonsense bankers and managers try to push.
Thanks
Ben, great video as always. Do you know why Avantis (AVUV) uses the Russell 2000 as its underlying index, even though it's clearly one of the worst ones?
Avuv actually does not track any index. It probably establishes its benchmark against the worst one to make it look better, but it doesn’t reference any external index for its investment decisions.
My portfolio is 20% AVUV.
@@jasonhobbs2405 I have the same opinion after carefully reading its prospectus. I also have 20% in AVUV.
Curious -do you have the same thoughts on private equity for real estate for apartment buildings? For example: a classic business model of renovating an apartment building and increasing to market rent, then the valuation is based on the increased profits generated from the apartment building. Much easier to understand and valuations are more clear. It is illiquid compared to markets still. I'm not disputing that the fund managers are making mint $$$...similar to running brokerages making $$$, etc. That's always true, those running funds..they make the real $$$
You've done a hundred videos on what's bad or not as good as some think...
Can we get a video on what is the best please?
DCA a S&P500 etf?
I know there is risk to reward sku but just in general what's best for a 20 year time horizon with a low chance of under peforming?
If market should become efficient to public knowledge, why does PE continue to gain in asset gathering? Is it because of the people in charge of making such allocation to PE, can defend their decision and keep their jobs, if they invest in brand PE and things go wrong?
It’s harder to defend politically if they lose just investing in benchmarks, despite being a better risk adjusted investment?
Ben, Can you point me to one of your videos that mentions historical returns of the average retail investor ? Misery loves company. Thanks.
As always top-notch content. A suggestion for future videos could be to dive into APT(Arbitrage Price Theory) and TAA(Tactical Asset Allocation)/GTAA(Global TAA) as a supplement to CAPM and factor models (centered around company specifics vs the market). From my understanding including macro key figures like interest rate, inflation, national income, exchange rates, etc. (and maybe also indices like e.g. VIX) is a field with future potential. Give it a thought :)
You should do one on Fundrise and Realty Mogul…. Private reits in USA
Can you do an episode on reg A and reg CF equity crowdfunding ?
Would the BDCs be a reasonable alternative to a private equity or not?
What edit app do you use to edit your videos ?
Hey! Where have you been? We missed you!
❤❤❤
Thoughts on PE funds that invest in secondaries?
Ben, dude, your videos are so incredibly well done. Your thought process and ability to communicate those thoughts reveal substantial cognitive ability and, I’m guessing, a good deal of effort. Even somebody with an IQ of 140 or greater would need to put in several hours to create this 13 min video. Maybe if your IQ is like 180 you could slam together such amazing content quickly.
You’re impressive, and you inspire me to be more deliberate in how I think about things.
Having high HQ has no correlation to the non-sense you're spouting lmao. Ben makes good video because he works hard, knows his stuff and does his research while having a competent editor.
"Private equity as an industry has minted 19 new billionaires from 2005 to 2020. These we not the investor in the funds, but the people running the funds that became wealthy." That sounds about right.
after reading the book about the founder of WeWork and how that company was valued prior to its cancelled IPO, I'll never touch private equity.
Doesn't the chart at 10:03 show median PE and VC outperforming global equities? Or am I missing something
In a way impressive that they can match a tilted portfolio with those fees
With the way things are moving ,I think I need to see a video on “how to survive amidst the present recession “.I mean everything in shambles
Surprisingly I heard people still make over a 100k within a few months ,and i’d like to know how and if it’s still possible in these times or am I being lazy
The wealth management arms of big banks offer their clients funds of funds that "buy the market" in hedge or private equity funds.
Scottish Mortgage Investment Trust has up to 30% exposure to private equities with fees of 0.32%. This would then be sensible to consider?
Wealthsimple just began offering private equity to premium and generational investors with their partner LGT. Advertising 12-14% net return. Wondering what Ben’s take would be on that
Cool
@BenFelixCSI - good talk but you didn't mention the tax implications of Carried Interest...?
That benefits the GP not the LP. This video is about why being an LP in PE kind of sucks. Being a GP is good business before and after tax.
@@BenFelixCSI Fair. Thanks for the prompt reply; generally very supportive of your no-nonsense approach to investing
Thanks!
All this is assuming your buying into a generic PE fund. Things are quite different if you know the team working on the deal and the project(s) they are working on. PE can be a great investment if you get an opportunity to invest in a great business idea. This is something you simply cannot do with with public markets. PE real estate is a great example. If you know the particular location and demand (say senior living) your equity investment will return much more than buying in a REIT which trades much higher than NAV.
Had experience in REPE and can say this is true, though it is not clear after fees (6-7%) how much excess returns is available to investors compared to typical REITs
Why can't you use IRR to compare returns of a closed end fund vs an index? They are both time weighted measures of total returns, no? Is it just because there is no adjustment for risk?
Also, how is the IRR "easily manipulated"?
This paper explains papers.ssrn.com/sol3/papers.cfm?abstract_id=1111796.
@@BenFelixCSI thx, interesting read, the reinvestment assumption seems to be the core of the issue
guys, any idea how one could make animations like the ones in the video, i really like them but i have no idea how to start
Maybe I did not understand some of the figures, but I always thought it was common sense that things like VC have a lower return to the market.
My understanding of that was that in the same way that the market pays a premium for risk, you pay a premium for exposure to the chance of striking gold. In other words, the skewness of the returns is the pitch, not a negative.
If you could actually invest in any VC fund you wanted, that might be true. Then you'd have as good (or bad) a chance as anyone on making those insane returns. And your mean return should be slightly better than index funds.
The problem, as Ben mentioned, is you don't even get a chance to invest in those top performing funds. You need to be a billionaire or incredibly well connected to even have a chance of getting in.
So now instead of having a small but fair shot at picking the right VC, it's become a rigged game that you have to pay fees to even enter.
There have been two Rational Reminder episodes on this topic recently that really go into depth on this if you're curious.
I really like your content, but the audio is very quiet, I have to crank up the volume and even at max it's hard to hear if you're in a noisy place...
Seems like you forgot to add compressor to your audio this time or something? It's a bit quiet no?
Isn't a lot of 'private' equity effectively public anyway?
Big publically-traded companies such as Apple and Berkshire Hathaway make a lot of acquisitions of private companies.
"the Russel index is the worst known" Is there a vlaue for somone to create a bad index that can then be used to make a given investment look more attractive?
It's just the most generic small-cap index.
The s & p 600 screens out unprofitable companies, the Russell 2000 just includes the 1001th to 3000th largest US stocks.
Also I'm not sure if the claim the Russell 2000 is has lower returns has been backtested terribly far; this may not continue.
Also, 'worst' is not neccesarily the best word. You could argue that if it shows lower returns, this is because there's something undesirable about the companies in other indexes which makes investors avoid them.
Another possible reason is that people use the Russell 2000 etfs themselves as arbitrage opportunities: *because* of its popularity it has lower returns, as traders frontrun the ETFs in buying the index constituents.
Oh dear! I just bought Tony Robbing's new book on that very pitch 🤣
ofdollarsanddata.com/the-holy-sale-of-investing/amp/
I stopped reading after the 4th Caz investment advertisement @@BenFelixCSI 🤣If you have any investment book recommends, it would be greatly appreciated
what about hedge funds?
One of the best ways to build your fortune - buy an existing business.
Second best is starting a private equity fund.
So they make slight above market return on investors money, while the managers of the fund become billionaires from the fees. Sounds about right for the whole hedge fund, PE, VC ( with some exceptions on both side of the market average) industry.
Ben just blew up an entire investment market. I wonder if any smart investor watching this video would then proceed with an investment in private equity? One thing about private equity is that it is sold to high net worth individuals as an exclusive club, from there, their ego takes over.
I am guessing you like Dimensional funds then Ben?
3:30 if Ben Felix is just "a guy on RUclips", I'm the Emperor of Mankind.
Hehe... It's like Tony Hawk saying "I'm just a guy that can kick-flip."
Absolutely, the only winners in PE investments are the partners. Most partners are terrible decision makers with no relevant experience within their respective portfolios.
Vanguard cannot be trusted with product launches that are not within their core plain vanilla offering; years ago it started a few factor tilt ETFs but took these off the exchanges a couple of years later.
Such funds have tax advantages in the US. You can't discuss them without analyzing those benefits.
Is that your way of saying you have no idea how that works?
I am not an accountant nor tax attorney, no. @@samsonsoturian6013
Hey someone sent me a private message after I made my last comment, the user had an avatar that is a picture of Ben and asked me to WhatsApp them, beware of scam artists folks!
Damn Ben! If I were Elon I would of hired you to manage my BILLION$$$$$$$$$$$$......💪
📌Do what everybody else is doing if you are okay with only having what everybody else has.Information that will pay you everyday, you've got to stop saving all your money.
Venture into investing some, if you really want financial stability.
Choose to grow and elevate your mind by studying audios, videos, attending conferences that will give you the edge!
Lately I’ve been thinking of buying cryptocurrency for retirement, I’ve set asides $350k to invest but along the line,I usually get cold feet, maybe because I have no idea what I’m doing, please I could really use some guidelines.
@@ernestradner156 In situations like this,I always recommend to people on getting guidance at least from someone that understands price action and all that while you strive on improving yourself by watching videos and learning fundamental analysis.
Investment guidance sounds like a great idea,thought about it before but never knew how to go about it.
@@seyedimohammadi6309 I used to invest on my own because of making your money work for you mentality but never made any progress until I sought the guidance of Juan Antonio Landa and she has made me understand that strategy is everything.
Wow…..Juan Antonio Landa?
I'm 100% sure investing in Private Equity for the general public will not be profitable.
Thanks for convincing me not to invest in something I can't invest in! Just kidding.
I still cannot believe this guy is like 6.7 ft
Come on now, I’m 6’11.
Do you think Private Equity is a fad? That’s been my suspicion.
I refuse to invest a dollar in anything that does not allow me to routinely observe valuation changes. That makes PE completely unattractive to me. I believe PE is a self-serving ecosystem of country club boys scratching each other's backs. You have to be one of the big fish to really benefit.
So why are the rich paying for that?
Since the stock market got democratized, obviously a new market had to be created exclusively for rich chumps.
🐂 BEN FELIX HOUSING BULL 🐂
you have no empathy...how are those fund managers ever supposed to put food on their tables if you keep posting videos like this?🤣