Moral hazard, demented democratisation, FT agendas, and more!
First, some news from us. Fund Shack's owner, Linear B Group, has cut a deal with Spotify's Megaphone platform. In Q2, Spotify will be rolling out video streaming in Europe, so if you have a Spotify sub, we recommend Following us there, for a soon-to-be immersive experience.
Fund management's moral hazard
According to Arena's Daniel Zwirn, "nothing is ever good all the time." If that's true, then fund managers who are dedicated to specific strategies (that's 99% of the private capital industry) will eventually face moral hazard when marketing their wares. And if that's true, so is the corollary: only strategically foot-loose managers can be: i) faithful fiduciaries and ii) contrarian. You might think, well LBOs have done pretty well so far. But maybe you are confusing 25 years with 'forever'.
Watered-down private equity: good enough for the masses?
Henry Freeman has spent his career at the nexus of public and private markets, and this episode takes a sharp look at the latest schemes to help "democratise" private equity - namely the UK's LTAFs and European ELTIFs. Henry and Ross discuss whether they are merely sub-optimal fudges or ill-conceived accidents-waiting-to-happen. If only there were some tried-and-tested ways for punters and DC pensions to access private equity returns. Wait, there are.
Alphaville's idiots (that's everyone except them and their chums)
A reader who still subscribes to the FT sent us the latest Alphaville comment "Is private equity actually worth it?" A more pertinent question might be, is Alphaville actually worth it? But that would be a very short article. Its long-standing agenda, as everyone knows, is to convince the world's investment fiduciaries that they are dim-witted and being scammed. The argument is the same as ever: they start by pointing out truisms: calculating returns is complex; average returns are meaningless; big investors get a better a deal. Then conflate these with canards: it's just a levered bet on mid-cap equities; all interspersed with quotes from contrarian academic, Ludovic Philappou, who has some rather singular views about private equity (which doesn't make him wrong, necessarily.) It's surely true that rising interest rates will change the game. And maybe "nothing is ever good all the time" (see above). But this all misses the point. It's not private equity returns that have been fundamentally misunderstood. It's private equity risk.
Speaking of misunderstanding risk....
Could the century's biggest private equity opportunity be hiding in plain sight? Next week's episode is with Stephane Bacquaert of Africa focused buyout firm, Adenia Capital Partners. If you accept that private equity risk, per se, has been wildly exaggerated (as above), and can also see through ill-informed geographical bias, you might have the makings of genuine alpha. (And genuine impact, btw).
Tune in next Thursday and expand your horizons!
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The Fund Shack team