Readings: Private Equity, Ski Towns, and $20 Bill Auctions

Finance & Economics

Private Equity and Calpers

Like most right-thinking people, I’m alternately puzzled and repelled by private equity. To be fair, I’m puzzled, mostly, at the people who aren’t repelled by a field that somehow takes all the worst parts of accountancy, middle-school bullying, and train-spotting, and turns them into an occupation that brings in MBAs the way McKinsey once did. Nevertheless, it is striking that CalPERS (the California public employees retirement fund) wants more money invested in private equity, and wants it there so badly that a CalPERS executive was recently quoted as saying, “We need more of it, and we need it now”.

The preceding is rarely a good thing to say out loud. The investments industry is, after all, nothing if not good at satisfying demand with supply. Hey, you want more private equity? Have I got some private equity for you, etc. The trouble is that most such pension fund managers want only the best funds, and the best funds can only run so much money on a finite planet, no matter how fee-ishly appealing it might be to general partners to run more. As a result of this sort of demand, much of which has come from underfunded and struggling pension plans like CalPERS, the supply of private equity funds has boomed in recent years, and their recent performance has been passable, even if there are unsettling signs that when you decompose private equity returns of late, a material fraction of the returns have come from tricks of the trade, like funds selling overpriced assets to other funds, which will strike most observers as a not particularly sustainable model. (I will save the whole discussion of why pension fund managers overvalue illiquidity for another day.)

Nevertheless, the entire CalPERS meeting transcript on the topic is worth a read, especially if you mentally /s/r “private equity” for “Public Equities Around 1999” as you go along nodding your head at the Deep Investing Thoughts.

It becomes fairly clear that the key to convincing yourself that private equity is nothing even remotely like a bubble is having an underfunded pension plan.


The College Admissions Scandal Thing

I remain fascinated by the studiously obtuse reactions to the college admission scandal thing. I’m sure my fascination will soon pass, but today’s installment comes from the studiously obtuse New York Times, which opines that it’s really a sports scandal, not an admissions scandal. This is impressive Shiny Object Over There work, and, most importantly, manages to avoid asking why sports is so important at colleges anyway.

Say, for example, colleges wanted athletes there so that they could exploit them in some way, perhaps for other income, or even from fund-raising with alumni. I’m sure neither of these things happen, but, as a thought experiment, you could imagine there would be more reasons to run flawed athlete-related admission programs that could be exploited by the unscrupulous — even if colleges claimed they were going to crack down on such programs to prevent further sports-related admissions scandal things.

Your Moment of Zen

GoPro: Kilian Jornet – Running Ridges 

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