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Hedgeye Investing Summit Spring 2024 | Dan Rasmussen, Founder & CIO, Verdad Advisers

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NOTE

Private Equity Underperformed Public Markets

Endowments with private equity investments performed poorly compared to a 60-40 portfolio without such investments. Private equity returns were flat, while public markets saw a 20% increase, resulting in significant underperformance. A deeper analysis revealed that private equity-owned companies grew slower than public markets, had zero margins, net income, and free cash flow generation. These businesses are fragile due to high levels of floating-rate debt from private credit backing. Private credit firms offer high yields to institutional investors, attracting funds by portraying these debt-backed companies as great investment opportunities, despite their financial fragility.

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