Vanguard Dips Toe into Private Equity

In February, low-cost index fund manager Vanguard announced plans to offer a private equity fund. This according to an article in Bloomberg. “The move represents a surprising convergence of two very different investing worlds,” the article states, noting the contrast between Vanguard’s reputation for keeping things simple (by offering low-cost index funds) and the inherent complexity of private equity funds–which typically include “opaque” portfolios that can keep cash locked up for years. Private equity funds,… Read More

One Investor’s Attempt to Revolutionize Private Equity

A recent article in Institutional Investor profiles San Francisco investor Ryan Caldbeck and his firm CircleUp, which plans to establish a quant fund for the private equity market. “While hedge funds have long used quant strategies in public markets, cracking private markets is tough as they’re less transparent,” the article reports, adding, “CircleUp, in seeking to figure it out first, could emerge at the center of disruption in private capital.” The idea first occurred to… Read More

‘Hoodwinked’ Institutions Pushing Back on Private Equity

An article in Institutional Investor reports that institutions are questioning the value of internal rate of return (IRR), a widely-used measure of portfolio performance. According to Jos van Gisbergen, who runs private equity at Achmea Investment Management, the accuracy of IRR is compromised by the industry’s increased use of subscription credit lines (to finance transactions before funds ask for capital from their investors). In an interview with II, he said that IRR is a “tool… Read More

KKR on Volatility in Private Markets

A recent paper by private equity firm KKR argues that, although the increased leverage and smaller company sizes typically included in private equity portfolios  should lead to more volatility in the asset class, private equity delivers more alpha than beta. This according to a recent article in Institutional Investor. Public company returns, on the other hand, are “driven more by beta, or the overall market, and are therefore more tied to the market’s ups and… Read More

Private Equity is Everywhere

A recent article in Bloomberg offers an in-depth look at the private equity industry, how it has evolved, and the ways it is “changing finance and the economy itself.” Here are some highlights from the article: Leverage is at the core: Private equity is focused on using debt to take over a relatively cheap company, “spruce it up” and sell it for a profit a few years later. The article notes that, besides the telltale… Read More

Private Equity Maybe Be Ripe for Disruption

The decreasing number of public companies and high fees in private markets are creating “the perfect conditions for a passive player to upend private equity,” according to an article in Institutional Investor. The article cites comments from a report by Willis Towers Watson’s investment think tank that suggests the current model of private equity, “which essentially involves putting leverage on a company, improving it operationally, and then selling it in a short period of time—has… Read More

Private Equity: Bigger Funds Not Necessarily Better

Private equity firms are raising increasingly bigger funds, but they don’t necessarily deliver bigger returns. This according to a recent article in The Wall Street Journal. “The rise of megafunds reflects the growing demand for private equity from large investors such as sovereign-wealth funds with hundreds of millions of dollars to put to work,” the article explains, adding that persistently low interest rates, private equity’s reputation for double-digit returns is enticing, even if it means… Read More

BlackRock is Trying to Fix Private Equity

A new private equity fund created by BlackRock is intended to hold companies for “up to forever” while addressing the issue of high fees, according to an article in Institutional Investor. The fund has been created by BlackRock’s long-term private capital team (LTPC) under the leadership of Andre Bourbonnais and fellow Canadian Mark Wiseman (chairman of the firm’s alternative-investment unit and global head of active equities). The two men structured the new fund, the article… Read More

Private Equity Returns More Illusion than Reality

A CFA Institute article offers analysis of private equity returns in the U.S. (using data from Cambridge Associates). Using the data, the Institute created a U.S. Private Equity Index the compare the industry’s performance against the S&P 500: But while the data shows outperformance, the article notes that the trend is “more illusion than reality. After all,” it says, “private equity portfolio companies are typically valued on a quarterly basis so lack a daily time… Read More

Some Buyout Firms Taking Debt-Laced Dividends

A new Moody’s report shows that certain aggressive buyout firms are taking debt-financed dividends from the companies they own, and “potentially jeopardizing their ability to navigate a downturn,” according to an article in Institutional Investor. The report shows that, since the end of 2009, Leonard Green & Partners, American Securities, Golden Gate Capital, TPG, and Apollo Global Management “have most frequently taken debt-financed dividends from companies they’ve bought,” with Apollo standing out because the dividends… Read More