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Modest Proposal - AI Commoditization and Capital Dynamics - [Invest Like the Best, EP.380]
Invest Like the Best with Patrick O'Shaughnessy
Consistency Breeds Value: Public Markets Outshine Private Equity
The Nasdaq 100 has consistently delivered five times the multiple on invested capital (MLIC) over the last decade, highlighting the stark contrast with private equity's performance, where achieving similar results is rare. While private equity boasts mid-teens internal rates of return (IRRs), these translate to only 1.617 MLICs under continuous compounding, which may not hold if capital is not effectively returned to investors. A significant $300 billion deficit in money returned versus invested over the past three years suggests that investors are receiving diminished returns, undermining the attractiveness of private equity compared to the 12.5% compound annual growth rate (CAGR) of the S&P 500. This raises questions about the rationale behind capital allocation away from robust public indexes, as they challenge all forms of investment, including private ventures.
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