All around financial advisors for retail customers

SonOf

Alexland wrote: »

While this thread is interesting, and Bowlhead is demonstrating top knowledge (again), it leaves me wondering what is wrong with the return from traditional mainstream long-term investments. It feels like trying to fix an already solved problem.

Some people cannot help themselves. They go looking for more complicated and unusual things in the pursuit of greed. Many are unlucky and get scammed or they suffer dreadful losses. When in reality, the mainstream continues to tick along doing exactly what you expect of it.

masonic

bowlhead99 wrote: »

In his last thread earlier this year, he didn't want to use a listed vehicle that invested as a fund-of-funds or did secondary transactions rather than direct, because he thinks that some fund houses might perform poorly, so he only wants to invest in the best ones that he picks himself from a wide range.

I really should take a peep at people's posting history in future. I could have saved myself some time.

masonic

Alexland wrote: »

While this thread is interesting, and Bowlhead is demonstrating top knowledge (again), it leaves me wondering what is wrong with the return from traditional mainstream long-term investments. It feels like trying to fix an already solved problem.

From what I've read, on average PE underperforms listed smaller companies investments. I suppose one benefit is that unquoted companies are infrequently valued, which masks the volatility and makes them appear safer, this also being a disadvantage.

cloud_dog

Or funds with high PE exposure, 3i Group (III) for example.

bowlhead99

masonic wrote: »

From what I've read, on average PE underperforms listed smaller companies investments.

Well, from the graph you posted in post 18, the returns from smaller companies (a selective/proprietary subset of small companies, being the smallest 30% of the index of companies with a market cap over $500m) *didn't* seem to outperform the private equity funds. This is despite the PE data being net of the high fee take from the PE fund managers, which all passive investors would say gives an unbeatable advantage to an index whose fees are presumed to be virtually nil.

Only when the person writing the article that you linked (who used to be a quantitative analysis driven fund manager and is now selling factor analytics) went and backtested a proprietary selection of smallcaps meeting his special 'small' and 'value' criteria, did he get a performance chart that PE underperformed.

I suppose one benefit is that unquoted companies are infrequently valued, which masks the volatility and makes them appear safer, this also being a disadvantage.

On the chart, the PE funds didn't plunge as dramatically as the smallco companies in the stock market crashes (which were pretty dramatic but masked by the fact the chart had an exponential axis), because the PE holdings back in those days were not routinely marked to fair value, thus building the PE table of returns using only a long term realised IRR will give a pretty smooth ride.

In the modern era, most PE funds mark their holdings to fair value on a quarterly basis in line with the accounting rules, so would show greater volatility. But historically going back a decade or three, it was assumed that holding everything at cost and only writing portfolio companies down in value when the investments were clearly impaired, was fine - because the investors don't have a chance to exit the investment fund for years in any case, and their realisable value at a point in time is only theoretical. Institutional private equity was almost exclusively closed-ended funds with no redemption allowed.

These days there are more active secondary markets so the question of value from quarter to quarter has more relevance, so more data is produced, and you could get a more volatile result tracking a PE portfolio with current levels of fund reporting than you would have got in the 90s or 00s.

The advantage of only valuing quarterly or semi annually rather than daily, combined with investors being forced to hold for a long period, is that the PE markets don't have the same unrelenting focus on quarterly results as the public markets - and so the companies' management, theoretically, won't need to try to 'game the numbers' for a quick hit of performance targets. The board of the business can focus on long term stuff for the business (translating to long term good result for the fund that owns it), without that pressure.

Infrequent valuation is not, per se, a disadvantage, as investors in these long term institutional funds are not generally looking to exit. If as an investor you don't like it, you can try to offload your stake to someone else, assuming the fund manager lets you. You only really need the valuation information if you are trying to make a strategic decision whether to stay invested or to exit, but if exit is only going to be possible at a steep discount, the people with a long term view will often just sit tight.

Whereas in public markets, people don't want to sit tight and would prefer a liquid alternative so they can do their own market timing. From OP's other posts he is not averse to indulging in market timing so perhaps accepting the inefficiencies of listed/ more liquid vehicles, would suit better.