I didn’t mean to turn this week into a week criticising private assets, but this is the third day in a row when I will be discussing private equity or private debt.
Interesting.. couldn't help pull out the old Charlie Munger quotes for this one 😂
"Show me the incentive and I'll show you the outcome"
“I think I've been in the top 5% of my age cohort all my life in understanding the power of incentives, and all my life I've underestimated it. And never a year passes but I get some surprise that pushes my limit a little farther.”
Your views and research on PE are welcome. As a PE investor there is one other aspect that I do not think is covered. Much as conventional fund managers use time weighted returns and not the money weighted that might better capture average client experience, PE GPs optimise their returns by avoiding underemployed capital leaving clients to hold the cash in reserve for calls. This can be for years yet calls mus the paid within days. Client experience is not the illustrated fund returns
Incentives matter.
Interesting.. couldn't help pull out the old Charlie Munger quotes for this one 😂
"Show me the incentive and I'll show you the outcome"
“I think I've been in the top 5% of my age cohort all my life in understanding the power of incentives, and all my life I've underestimated it. And never a year passes but I get some surprise that pushes my limit a little farther.”
Your views and research on PE are welcome. As a PE investor there is one other aspect that I do not think is covered. Much as conventional fund managers use time weighted returns and not the money weighted that might better capture average client experience, PE GPs optimise their returns by avoiding underemployed capital leaving clients to hold the cash in reserve for calls. This can be for years yet calls mus the paid within days. Client experience is not the illustrated fund returns
Very true, which is why IRR is such a useless figure in PE investments.