6 ms·

I was wrong about the social security system, which I must have gotten confused with some kind of pension system, like CALPERs, which used to invest in hedge fu

by mjfl 2y ago

I was wrong about the social security system, which I must have gotten confused with some kind of pension system, like CALPERs, which used to invest in hedge funds before pulling out in 2014, but still allocates 40% of its portfolio into private equity [1], which may be worse than hedge funds for reasons I have discussed elsewhere. Everything else I said was true. > Don’t want one, invest elsewhere. Ordinary people have little control over what their pension funds invest in, and typically are not informed on these issues. [1] https://raoglobal.org/insights/calpers-goes-big-on-private-equity-upping-allocation-to-40 https://raoglobal.org/insights/calpers-goes-big-on-private-e...

SideQuark 2y ago
> which may be worse than hedge funds PE obtains higher returns than public funds simply because they have more options to invest in. They can put the cash into anything public invested funds can choose, AND a massive range of other projects. CalPERS is not an ignorant investor. They see the results, and they allocate accordingly. From your own link : "Over the past ten years, private equity has delivered an annualized return of 11.8%, compared to 8.9% for public equities, 2.4% for fixed income, and 7.7% for real assets. With traditional asset classes like bonds struggling to keep pace with inflation, CalPERS is looking to private equity to help them meet their long-term investment goals." So yes, if you want worse returns, continue to believe unsupportable things. If you want to manage people's money, then choose well, and this is chosen well. >Ordinary people have little control over what their pension funds invest in, and typically are not informed on these issues. Which is good, because they also are not generally capable to manage their investments with as good as returns (otherwise every little mom and pop would beat PE, which is extremely far from the truth). A google scholar search on PE returns versus public, top several hits that give numbers to the question: https://www.joim.com/wp-content/uploads/emember/downloads/P0520.pdf https://www.joim.com/wp-content/uploads/emember/downloads/P0... - PE outperforms https://openurl.ebsco.com/EPDB%3Agcd%3A7%3A13677223/detailv2?sid=ebsco%3Aplink%3Ascholar&id=ebsco%3Agcd%3A169696654&crl=c&link_origin=scholar.google.com https://openurl.ebsco.com/EPDB%3Agcd%3A7%3A13677223/detailv2... "The model illuminates why, over the short term, private returns are superior to public ones, whereas over the long term, public and private returns are largely interchangeable after proper adjustments are made, resolving a long-standing conundrum" https://onlinelibrary.wiley.com/doi/abs/10.1111/jofi.12154 https://onlinelibrary.wiley.com/doi/abs/10.1111/jofi.12154 "We study the performance of nearly 1,400 U.S. buyout and venture capital funds using a new data set from Burgiss. We find better buyout fund performance than previously documented—performance has consistently exceeded that of public markets. Outperformance versus the S&P 500 averages 20% to 27% over a fund's life and more than 3% annually. " It's best not to invest with emotion, but with knowledge. Knowledge comes from analyzing markets and reading financial industry research, not repeating misinformed tropes.
- mjfl 2y ago
  I would argue the CalPERs does not know the return of its private equity investments because private equity is a recent phenomenon and one that locks up funds for 4-7 years, and I would predict that its realized returns will be disappointing. The financial literature is a crapshoot filled with selection bias that I wouldn't consult for anything. Rather, I will rely on my personal experience which is: private equity is a racket.
  - SideQuark 2y ago
    I don’t understand why so many people in this thread keep posting trivially easy to check incorrect claims. Private equity, in the modern form, has been used since before 1950. It’s trivial to check. CalPERs provides detailed annual reports with returns broken out. No one runs a nearly half trillion fund and “does not know the return of its” component investments. I’m glad you trust your limited, obviously emotionally driven, demonstrably lacking in knowledge at every comment in this thread, beliefs over market data. You demonstrate to others why so many people are not going to do well handling their own pensions compared to those using proper methods.
    - mjfl 2y ago
      You misunderstood the meaning of what I said. Private equity has existed for a long time, but as an asset class has it had a huge boom for the past 20 years, gaining market share that it never had. This trend has been recognized by several media outlets. This article in Moonfare shows the private equity AUM has roughly tripled in the past 15 years and the number of private equity funds quadrupled between 2012 and 2021 [1]. This article by Citizens Bank documents the exponential rise in the number of companies owned by private equity while public has remained flat [2]. Another article discussing the exponential growth can be found here [3]. I guess I wasn't super clear, but anyone who's worked in the actual industry would have understood what I meant. And the fact that you didn't suggests to me that you don't have a lot of practical experience, or if you do you are stunningly aloof to the workplace discussions of your colleagues. People who actually work in the industry would also be familiar with the fact that, yes in fact people who run funds with a half trillion under management can be stunningly unsophisticated and simply go with flashy new trends - like private equity! This has been commented on in several industry podcasts. And again, your reference to academic studies in the financial field which, despite some people like AQR using them in their marketing, most practitioners seriously discount due to the severe problem of selection and survivorship bias, makes me believe you actually don't have any idea what you are talking about. Actually you've said a lot of absurd things: > Hedge funds don’t magically take your money any more than Santa Claus takes your money. Again, people don't generally control what their pension fund invests in. [1] https://www.moonfare.com/pe-masterclass/private-equity-market-size https://www.moonfare.com/pe-masterclass/private-equity-marke... [2] https://www.citizensbank.com/corporate-finance/insights/private-equity-trends.aspx https://www.citizensbank.com/corporate-finance/insights/priv... [3] https://www.dakota.com/resources/blog/private-markets-on-the-rise-whats-next-for-private-equity-investors https://www.dakota.com/resources/blog/private-markets-on-the...
deleted 2y ago
[deleted]

by mjfl 2y ago

SideQuark 2y ago

> which may be worse than hedge funds PE obtains higher returns than public funds simply because they have more options to invest in. They can put the cash into anything public invested funds can choose, AND a massive range of other projects. CalPERS is not an ignorant investor. They see the results, and they allocate accordingly. From your own link : "Over the past ten years, private equity has delivered an annualized return of 11.8%, compared to 8.9% for public equities, 2.4% for fixed income, and 7.7% for real assets. With traditional asset classes like bonds struggling to keep pace with inflation, CalPERS is looking to private equity to help them meet their long-term investment goals." So yes, if you want worse returns, continue to believe unsupportable things. If you want to manage people's money, then choose well, and this is chosen well. >Ordinary people have little control over what their pension funds invest in, and typically are not informed on these issues. Which is good, because they also are not generally capable to manage their investments with as good as returns (otherwise every little mom and pop would beat PE, which is extremely far from the truth). A google scholar search on PE returns versus public, top several hits that give numbers to the question: https://www.joim.com/wp-content/uploads/emember/downloads/P0520.pdf https://www.joim.com/wp-content/uploads/emember/downloads/P0... - PE outperforms https://openurl.ebsco.com/EPDB%3Agcd%3A7%3A13677223/detailv2?sid=ebsco%3Aplink%3Ascholar&id=ebsco%3Agcd%3A169696654&crl=c&link_origin=scholar.google.com https://openurl.ebsco.com/EPDB%3Agcd%3A7%3A13677223/detailv2... "The model illuminates why, over the short term, private returns are superior to public ones, whereas over the long term, public and private returns are largely interchangeable after proper adjustments are made, resolving a long-standing conundrum" https://onlinelibrary.wiley.com/doi/abs/10.1111/jofi.12154 https://onlinelibrary.wiley.com/doi/abs/10.1111/jofi.12154 "We study the performance of nearly 1,400 U.S. buyout and venture capital funds using a new data set from Burgiss. We find better buyout fund performance than previously documented—performance has consistently exceeded that of public markets. Outperformance versus the S&P 500 averages 20% to 27% over a fund's life and more than 3% annually. " It's best not to invest with emotion, but with knowledge. Knowledge comes from analyzing markets and reading financial industry research, not repeating misinformed tropes.

mjfl 2y ago
I would argue the CalPERs does not know the return of its private equity investments because private equity is a recent phenomenon and one that locks up funds for 4-7 years, and I would predict that its realized returns will be disappointing. The financial literature is a crapshoot filled with selection bias that I wouldn't consult for anything. Rather, I will rely on my personal experience which is: private equity is a racket.
- SideQuark 2y ago
  I don’t understand why so many people in this thread keep posting trivially easy to check incorrect claims. Private equity, in the modern form, has been used since before 1950. It’s trivial to check. CalPERs provides detailed annual reports with returns broken out. No one runs a nearly half trillion fund and “does not know the return of its” component investments. I’m glad you trust your limited, obviously emotionally driven, demonstrably lacking in knowledge at every comment in this thread, beliefs over market data. You demonstrate to others why so many people are not going to do well handling their own pensions compared to those using proper methods.
  - mjfl 2y ago
    You misunderstood the meaning of what I said. Private equity has existed for a long time, but as an asset class has it had a huge boom for the past 20 years, gaining market share that it never had. This trend has been recognized by several media outlets. This article in Moonfare shows the private equity AUM has roughly tripled in the past 15 years and the number of private equity funds quadrupled between 2012 and 2021 [1]. This article by Citizens Bank documents the exponential rise in the number of companies owned by private equity while public has remained flat [2]. Another article discussing the exponential growth can be found here [3]. I guess I wasn't super clear, but anyone who's worked in the actual industry would have understood what I meant. And the fact that you didn't suggests to me that you don't have a lot of practical experience, or if you do you are stunningly aloof to the workplace discussions of your colleagues. People who actually work in the industry would also be familiar with the fact that, yes in fact people who run funds with a half trillion under management can be stunningly unsophisticated and simply go with flashy new trends - like private equity! This has been commented on in several industry podcasts. And again, your reference to academic studies in the financial field which, despite some people like AQR using them in their marketing, most practitioners seriously discount due to the severe problem of selection and survivorship bias, makes me believe you actually don't have any idea what you are talking about. Actually you've said a lot of absurd things: > Hedge funds don’t magically take your money any more than Santa Claus takes your money. Again, people don't generally control what their pension fund invests in. [1] https://www.moonfare.com/pe-masterclass/private-equity-market-size https://www.moonfare.com/pe-masterclass/private-equity-marke... [2] https://www.citizensbank.com/corporate-finance/insights/private-equity-trends.aspx https://www.citizensbank.com/corporate-finance/insights/priv... [3] https://www.dakota.com/resources/blog/private-markets-on-the-rise-whats-next-for-private-equity-investors https://www.dakota.com/resources/blog/private-markets-on-the...

deleted 2y ago

[deleted]