As an asset class, private equity is a losing proposition.
That bald assertion comes not from an outside critic, but from an insider, Erik R. Hirsch, the chief investment officerof Hamilton Lane, a private equity asset management firm with more than $100 billion managed and advised.
Private equity, from the point of view of investors, or limited partners, is expensive, it is illiquid and often doesn’t beat returns from equity markets.
So what’s the punchline from Hirsch, who was interviewed today at the Dow Jones Private Equity Analyst Conference in New York by Laura Kreutzer of Dow Jones? (Dow Jones employees write for this blog.)
While the industry taken as a whole might not be a great deal for institutional investors (Hirsch said he wouldn’t want to own an index of the private equity asset class), Hirsch talked of a “brass ring,” s certain club of private equity managers who consistently outperform public markets. If investors find them, long-term rewards will allow them to put up with high fees, the significant length of investment and lack of liquidity.
In the same interview, Hirsch bemoaned the fact there’s no agreed-upon benchmark for the private equity sector. It allows for a variety of measures and more managers than warranted to refer to themselves as top performers.
As for the health of the sector, Hirsch said that as a class, private equity is adding capital. That fact means this is not an industry in trouble, not an industry in “a death spiral.”