The Private Equity Malaise

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From the man, Dan Primack, who proclaimed a few years ago venture capital was fixed after publishing many of my articles on Reuters PE Hub regarding the subpriming of venture capital and the core fallacies of asset management, now comes the report private equity has underperformed public indices for the last ten years. Go figure. 

Just because you write about something – a lot – does not mean you know what you are talking about, is a saying that comes to mind.

I suggest you peruse the qualifications of how I evaluate members of the press to realize how these reports merely blow with the wind and, after years of blissful ignorance, ultimately land on what I predicted years back. The chickens have come back to roost. Not because I proclaim to be a genius, but because I focus on causation rather than correlation to assess the viability of regenerative investment returns. The reason why large pension and investment funds, worried about the longevity they need to provide to their members, call on me.

So, I suggest you forget about the flip-flopping of the press and focus on the heart of the matter, the reality that a vast greenfield of innovation cannot be served by a dysfunctional financial arbitrage fundamentally incapable of following the dynamic nature of the investible asset.

On a higher-order topic, what makes you think the relativity of nature’s assets can be traced by a financial arbitrage stuck in absolutism?

But for those not well versed in evolutionary relativity, I posit: how come the expansion of the fractal of human ingenuity promulgated by the supposed unique insight into foresight does not outperform the public trading, err regurgitation of hindsight? Put differently, how come amidst a massive greenfield of innovation the marriage counselor, private equity, between the assets of limited partnersmoney – and the assets of entrepreneurs – ideas – cannot yield consistent outlier returns the expansion of human ingenuity combatting nature’s unrelenting entropy craves? 

The answer, as I have repeated on my blog extensively, lies in how the risk in asset management is structured, with ten levels of embedded, bottom-heavy diversification incapable of tracing the dynamic nature of the investible attribute in question, regardless of the asset class. 

Private equity, of which venture capital is wrongly designated a sub-sector, aught to outperform other asset classes and should expand the fractal of human ingenuity, by using investment strategies tailored to the needs of ever-evolving assets. Not, by holding on to dogmatic and outdated classifications of risk tied to distribution.

Private equity can and will outperform any other asset class when it begins to trace the evolutionary nature of the investible assets. For the simple reason, human ingenuity, and therefore alpha, is poised to expand by the laws of evolution.

The theory determines what can be discovered, according to Einstein. And until the theory of private equity evolves with the nature of the asset, private equity, like any other asset class, will merely produce the regurgitation of hindsight that will make the last ten years look like the next.

It is time for asset managers to “come to Jesus” and face a new evolutionary reality the old Jesus, stuck in outdated scripture of asset management, fails to provide. 

 

Discuss

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Georges van Hoegaerden
Georges van Hoegaerdenhttps://www.method41.com/georges
Georges is the Founder and Managing Director of method41. From analyzing the workings of policy, capital, and innovation, Georges noticed how these siloed constructs are woefully incompatible with the principles nature deploys to produce regenerative performance. With humanity stuck in a fabric of its own making, Georges set out to reinvent the operating-systems of humanity to fix the theory that determines what humanity can discover, aiming to fundamentally improve human adaptability to nature's entropy.
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