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In the Financial Times, Ruchir Sharma suggests in the tight money era, wealthy investors will find no place to hide in private investments. He writes:
If a bubble is a good idea gone too far, the $10tn global market for private investing in everything from debt to companies to real estate may be one.
The rage for private investing began in the early 2000s, after the success of the Yale University endowment fund led by David Swensen, who embraced private investments to diversify away from stock and bond markets and stabilise returns in the long run. Swensen’s definition of “long” was decades — not a mere ten years, much less the next turn from bear to bull market. He looked for private managers who were building companies rather than stripping and flipping for a quick profit. Swensen defined his job as generating multigenerational wealth to support Yale, which he assumed to be “immortal”. But his approach also had the potential to free money managers from daily pressure in the markets, and transcend the short-term thinking that was infecting modern capitalism.
What started as a sound idea has become an escape from something else entirely: reality. In return for the promise of superior returns, private funds typically “lock in” client money for up to 10 years, then report to clients much less frequently than public funds do — quarterly at most, not daily. In the new tight money era, with losses spreading across asset classes, private channels have become a way for money managers to conceal losses from clients — typically capital allocators at pension funds or other big savings institutions — who are often content in the dark. They don’t want to face the agonies of daily volatility either.
It is a conspiracy of silence, built on hope. The economic consensus is that Federal Reserve tightening may trigger a recession soon, but it will be shallow and short. If privates can hang on just a few more months, the conspiracy will have achieved its purpose, papering over losses in this bear market.
Read more here.
