EP 509 Do Private Equity Investments Outperform Publicly Traded Ones?

Once a little regarded niche of the investment world, private equity has grown into a juggernaut, with impacts on a wide range of industries as well as financial markets. While most pension funds and endowments rely to a large degree on publicly traded securities and bonds, the portfolios of many of these funds add private equity to their mix.  The question is why.  Do private equity firms get better returns?  Cost less in fees?  Have more transparency?  The answer in each case is–no.  In his book, ‘The Myth of Private Equity’, Jeffrey Hooke tries to explain why up to 10 percent of investment dollars today are in private equity.  Looking back as far as 2006 it doesn’t seem to make a lot of sense given the fact that it hasn’t between plain vanilla, low cost index funds or portfolios with a traditional 60/40 blend of stocks and bonds.  So why have many money managers been enamored with private equity, which involves not buying shares, but rather  whole companies. It seemed hard for me to understand the aura surrounding these financial instruments so, on your behalf, I asked him to explain to you and me what’s really the state of play in the finance world surrounding private equity.  We, indeed, explode some myths today on the podcast.