Summary of The Private Equity Pitch

00:00:00 - 00:10:00

The presenter argues that private equity does not offer the same returns as it has in the past, and that this is due to the increasing popularity of the asset class. The presenter also finds that private equity funds are not as diversified as they appear, and that this can have a negative effect on performance.

• 00:00:00 Private Equity is a form of investment that has seen a significant increase in popularity in recent years, due to its potential for high returns and increased portfolio diversification. While it is straightforward to evaluate the performance of private Equity assets, there are a number of factors to consider when doing so, including the illiquidity of the assets and the market dynamics of the sector.
• 00:05:00 The video discusses the current state of private equity, highlighting that although private equity has generated impressive returns in the past, these returns are not necessarily sustainable. The paper "The Private Equity Pitch" by economists Justin Chen and Emmanuel Saez presents evidence that this trend is likely due to the increasing interest in private assets, and that aggregate private equity returns are not very different from public equity indexes. The paper also finds that private equity funds are not as diversified as they appear, and that this illusion of diversification can have a negative effect on performance.
• 00:10:00 According to the presenter, private Equity offers lower mean returns than a replicating strategy consisting of low-priced small cap public equities and leverage. Furthermore, the presenter finds that there is no evidence of a distinct liquidity premium in private Equity, and that the returns of private Equity Funds have been similar to public Equity returns since at least 2006. Finally, the presenter notes that there is a huge dispersion in fund returns between the best and worst private Equity Funds and even moreso with Venture Capital.