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Do You Really Need 'Private' Investments? (Independent Vanguard Adviser, 05.27.2025)
The following excerpt is from a book titled The Humble Investor (Chapter 6: The Private Equity Bubble) published earlier this year. The book's author, Daniel Rasmussen, is very skeptical regarding private equity.
“Private equity makes a beautiful pitch: high returns, low risk, stock-picking, operational improvement, a superior form of capitalism. But studying the rise of private equity—and understanding its pitfalls— shows just how hollow so many of these promises are. By ignoring the marketing, and instead, focusing on what we know about these companies, we come to a very different conclusion. Who, after all, wants to put 40% of their portfolio in highly leveraged, low-margin micro-cap stocks that trade at valuations in excess of the S&P 500 with 10-12 year lock-ups at 2% and 20% fees? Yet that is what most of the top university endowments are doing today.”
David Stein (Money for the Rest of us Podcast) stated that its not a great time to be investing in PE.
- fundraising has slowed tremendously - there are tons of PE firms that can't sell their firms due to various reasons - tons of liquidity problems - uni endowments are selling at tremendous discounts because they are so illiquid - PE firms are needing to raise liquid capital to let investors out of old PE investments out.
The excerpts shown here are a very small section of Mr. Zweig's entire report. I stronly recommend that his report be read in it's entirety. The above link should be free to all.
Wall Street is promoting a colossal lie.
Money managers are in a desperate race to stuff illiquid, so-called private-market assets into funds anyone can buy, including your 401(k). They say we all can earn high return and low risk with nontraded “alternatives” like private equity, venture capital and private real estate.
Because private assets don’t trade, it’s the fund managers—not the market—that determine what they’re worth. That enables the managers to report much fewer and lower fluctuations than public funds do. Then they get to declare that private funds are low risk.
That’s ridiculous. In the real world, risk is the chance of losing money, which has nothing to do with how often prices are reported. Cliff Asness, co-founder of AQR Capital Management, calls the smooth returns reported by alternative funds “volatility laundering.”
Owning an alternative fund is a lot simpler than selling it. When you own it, you might take the manager’s valuations for granted, even if that’s a bad idea. When you sell it, the valuation matters—a lot. That’s a risk.
In short, an alternative fund can claim to be low risk and to be at least partly liquid—but, sooner or later, it won’t be able to sustain both claims at once. That’s true here, and for all the other funds hoping to rope in a much wider base of everyday investors.
Remember that as politicians ease the way for alternative funds to land in your retirement plan.
Jeffrey Ptak shares his views about stuffing private equity/private credit into target-date strategies.
“I’m not necessarily worried about a doomsday scenario where there’s a failure in one target-date series— say, they get redemptions and can only partially fulfill the request— and that spooks participants in unrelated target-dates, in a kind of cascade. That’s not unthinkable, of course, but it’s not the main thing I get hung up on.”
“Rather, it’s the risk we’ll see a gradual erosion of confidence in target-dates as the simple, low-cost, quintessentially utilitarian retirement solution they’ve become. Trust is a brittle thing and when you start playing around with illiquid securities— in the name of 'optimizing' an allocation—you can test the limits of bend-but-not-break.”
Comments
(Chapter 6: The Private Equity Bubble) published earlier this year.
The book's author, Daniel Rasmussen, is very skeptical regarding private equity.
“Private equity makes a beautiful pitch: high returns, low risk, stock-picking, operational improvement,
a superior form of capitalism. But studying the rise of private equity—and understanding its pitfalls—
shows just how hollow so many of these promises are. By ignoring the marketing, and instead,
focusing on what we know about these companies, we come to a very different conclusion.
Who, after all, wants to put 40% of their portfolio in highly leveraged, low-margin micro-cap stocks
that trade at valuations in excess of the S&P 500 with 10-12 year lock-ups at 2% and 20% fees?
Yet that is what most of the top university endowments are doing today.”
- fundraising has slowed tremendously
- there are tons of PE firms that can't sell their firms due to various reasons
- tons of liquidity problems
- uni endowments are selling at tremendous discounts because they are so illiquid
- PE firms are needing to raise liquid capital to let investors out of old PE investments out.
Excerpts from a current Wall Street Journal article by Jason Zweig
The excerpts shown here are a very small section of Mr. Zweig's entire report. I stronly recommend that his report be read in it's entirety. The above link should be free to all.
“I’m not necessarily worried about a doomsday scenario where there’s a failure in one target-date series—
say, they get redemptions and can only partially fulfill the request—
and that spooks participants in unrelated target-dates, in a kind of cascade.
That’s not unthinkable, of course, but it’s not the main thing I get hung up on.”
“Rather, it’s the risk we’ll see a gradual erosion of confidence in target-dates
as the simple, low-cost, quintessentially utilitarian retirement solution they’ve become.
Trust is a brittle thing and when you start playing around with illiquid securities—
in the name of 'optimizing' an allocation—you can test the limits of bend-but-not-break.”
https://jeffreyptak.substack.com/p/foia-gras
I can only hope that people are paying attention to the warnings, and to who is pitching the sales.