Why I am not investing in a buyout for a long time to come | opinion
email rounding up the latestThe writer is chief executive of Hunter Lewis LLC and a co-founder and former chief executive of Cambridge Associates
For most of my career, I have been a strong proponent of both venture and buyouts, not a critic. I was present at the creation of today’s private equity industry. A group of us, colleagues and clients, including staff from Harvard, Yale, Princeton, Stanford and the Massachusetts Institute of Technology, began developing what became the university investment model in the mid 1970s.
The refrain went as follows. Want higher and more reliable returns? Tired of the public market price rollercoaster? Embrace buyouts. No public prices. Volatility solved. Inflated returns, denial of volatility, high prices and fees, excessive leverage, absence of covenants on buyout debt — all this together represents fantasy thinking. It is what happens when a successful investment model becomes too popular.
A single institutional investor may have an investment committee chaired by a private equity partner who is also a major donor. It might also have an internal staff head from the same background and analysts devoted to studying private funds, many of whom aspire to join the same funds they are supposed to evaluate.
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