Deep Dive on Private Equity: Risk, Returns, and Manager Performance (S1 E11)

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Discover the hidden complexities of private equity and the factors that can make or break your investment portfolio. Edward Finley guides you through the labyrinth of risk factors inherent in private equity, drawing on the analytical work of the economists L'Her, Jenkinson, Kaplan, and many others to dissect the performance of buyout, venture capital and growth equity strategy under the microscope of risk.

We unravel the myth that larger firms are always the prime targets for buyouts, exposing a surprising tilt toward smaller companies and their associated size premiums. As we navigate the murky waters of measuring value in private equity, where market prices don't exist, we find that buyout almost certainly buys value firms but it's impossible to observe; while venture capital and growth equity likely have the opposite.  We also shed light on the impact of leverage in the strategies and its double-edged sword in shaping returns.

Come further into the realm of private equity with me as we evaluate the performance of buyout and venture capital. Through the lens of recent scholarly work by luminaries like Harris, Jenkinson, and Kaplan, we uncover that the modest outperformance of buyout since the turn of the century is really the result of only top quartile managers...and, sadly, there seems to be no way to know which managers will be at the top.  In contrast, we discover that the top quartile venture capital managers earn whopping excess return, even more than the already impressive median manager.  What's more, it seems like top managers tend to be top managers.  So what's the catch?  Listen and fined out!!

Our conversation is a clarion call to investors, emphasizing the pitfalls of investing in the private equity landscape. Stay tuned as we pivot from equity to the world of bonds in our next episode, promising to enrich your finance knowledge journey with each step we take together.

Notes - https://1drv.ms/p/s!AqjfuX3WVgp8uXbQAMablbPWeFl6?e=hhPBhc

Thanks for listening! Please be sure to review the podcast or send your comments to me by email at [email protected]. And tell your friends!