Ludovic Phalippou of the University of Oxford – Said Business School did an excellent report on the performance of Private Equity, stating Private Equity (PE) funds have returned about the same as public equity indices since at least 2006. Concluding the Private Equity model, especially in the Leveraged Buy-Out (LBOs) segment, is a costly form of financial intermediation.
Why are trustees, investment teams, external managers, and consultants not seeing through this, Ludovic questions rightfully?
While one should be careful to infer causation from the ample correlation provided in this report, the correlation debunks the statements by so many arbiters of finance of how they possess unique insights into the fractal of human ingenuity and understand the risk profile required to produce repeatable investment returns.
I have felt wrath when questioning the top asset management firms with fundamental questions posed to the CIOs of large financial institutions, like, “Why do you think ten levels of bottom-heavy diversification of risk will yield consistent outlier returns?”
Truth deserves to be answered.
In my video presentation called Re-risk Asset Management, I divulge in some 36 articles on risk management the causation of middle-of-the-road and infinite regression of PE returns. Read those articles for in-depth causal analyses.
You see. In asset management, the distribution must follow risk, not risk following distribution. Ten levels of bottom-heavy diversification must be removed to eliminate embedded risk to identify the critical path to success. Top-quartile is a meritless and meaningless indicator of financial performance. Sustainability is an evolutionary oxymoron, a false positive to regenerative alpha, while our universe revolves around the renewal of assets—different rules requiring different strokes.
Meaning, the expanding fractal of human ingenuity, delivering the incremental value of assets revolving around a theory of relativity, can only be accurately traced to produce regenerative alpha using an identical theory of relativity of finance. To be a great investor, you must know more about the nature of the investible assets.
We have come to the rescue.