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Trending: Top Three Emerging Markets Equity Funds
Daniel Cross
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These funds specifically invest in emerging market economies with the largest being China...
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It’s important that Rivkin noted private equity (PE) didn’t provide the benefits of daily liquidity that mutual funds do. And he suggested that investors make sure they consider the risk of a liquidity trap before investing. He then closed with the following: “With a potentially lower return from the traditional markets, meeting an investor’s financial goals today requires a fresh look at allocations [to private equity].”
There’s a reason that the phrase “lies, damned lies, and statistics” (popularized by Mark Twain, among others) has become cliché. Wall Street’s marketing machine is great at using the persuasive power of numbers, particularly the use of statistics, to bolster weak arguments. And comparing the returns of private equity to the S&P 500 and claiming outperformance could be described as the poster child for the lies told by Wall Street.
At least, in Rivkin’s case, he referred to the 3.5 percentage point difference in the return between the Cambridge U.S. Private Equity Index and the S&P 500 over that 25-year period as an “illiquidity premium.” However, at best, you can consider the statement a “white lie.” Let’s see why this is the case.
In case you’re wondering, from inception in April 1993 through February 2016, the DFA U.S. Small Cap Value Fund (DFSVX) returned 11.2 percent, the same return as the Fama-French Small Value Index during that period. Thus, investors could have realized the returns suggested by the index. (Full disclosure: My firm, Buckingham, recommends DFA funds in constructing client portfolios.)
It’s also important to note that Sensoy, Yingdi Wang and Michael Weisbach, authors of the 2014 study Limited Partner Performance and the Maturing of the Private Equity Industry, found that in their more recent sample of PE funds raised between 1999 and 2006, there was no evidence that endowments outperformed other limited partner types or displayed any superior skill at selecting general partners.
Finally, returning to the aforementioned paper, Kaplan and Sensoy concluded that “the disappearing endowment advantage is consistent with other secular trends in the industry, particularly the decline in VC [venture capital] performance since the late 1990s and the decline in performance persistence in BO [buyout] firms.”
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Find out why $30 trillon is invested in mutual funds.
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Find out why $30 trillon is invested in mutual funds.
Download our free report
Find out why $30 trillon is invested in mutual funds.
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It’s important that Rivkin noted private equity (PE) didn’t provide the benefits of daily liquidity that mutual funds do. And he suggested that investors make sure they consider the risk of a liquidity trap before investing. He then closed with the following: “With a potentially lower return from the traditional markets, meeting an investor’s financial goals today requires a fresh look at allocations [to private equity].”
There’s a reason that the phrase “lies, damned lies, and statistics” (popularized by Mark Twain, among others) has become cliché. Wall Street’s marketing machine is great at using the persuasive power of numbers, particularly the use of statistics, to bolster weak arguments. And comparing the returns of private equity to the S&P 500 and claiming outperformance could be described as the poster child for the lies told by Wall Street.
At least, in Rivkin’s case, he referred to the 3.5 percentage point difference in the return between the Cambridge U.S. Private Equity Index and the S&P 500 over that 25-year period as an “illiquidity premium.” However, at best, you can consider the statement a “white lie.” Let’s see why this is the case.
In case you’re wondering, from inception in April 1993 through February 2016, the DFA U.S. Small Cap Value Fund (DFSVX) returned 11.2 percent, the same return as the Fama-French Small Value Index during that period. Thus, investors could have realized the returns suggested by the index. (Full disclosure: My firm, Buckingham, recommends DFA funds in constructing client portfolios.)
It’s also important to note that Sensoy, Yingdi Wang and Michael Weisbach, authors of the 2014 study Limited Partner Performance and the Maturing of the Private Equity Industry, found that in their more recent sample of PE funds raised between 1999 and 2006, there was no evidence that endowments outperformed other limited partner types or displayed any superior skill at selecting general partners.
Finally, returning to the aforementioned paper, Kaplan and Sensoy concluded that “the disappearing endowment advantage is consistent with other secular trends in the industry, particularly the decline in VC [venture capital] performance since the late 1990s and the decline in performance persistence in BO [buyout] firms.”
Receive email updates about best performers, news, CE accredited webcasts and more.
News
Daniel Cross
|
These funds specifically invest in emerging market economies with the largest being China...
Jayden Sangha
|
In this article, we will take a closer look at the upcoming initiatives...
Kristan Wojnar, RCC™
|
This week we are tackling the practice management topics of a client-centric approach,...
Find out why $30 trillon is invested in mutual funds.
Download our free report
Find out why $30 trillon is invested in mutual funds.
Download our free report
Find out why $30 trillon is invested in mutual funds.
Mutual Fund Education
Justin Kuepper
|
Let's take a closer look at how ESG investments have outperformed during the...
Mutual Fund Education
Daniel Cross
|
While CITs and mutual funds share many similarities, there are some key differences...
Mutual Fund Education
Sam Bourgi
|
The phrase ‘bear market’ has been thrown around a lot lately, but it...