Is Private Equity Overrated? My reply to a fireman who hasn't been vaxxed; Greetings from Cotopaxi
1) Michelle Celarier makes some excellent points and raises spot-on questions in this weekend column for the New York Times: Is Private Equity Overrated? Excerpt:
Since 2017, investors have poured more than $1 trillion into global private equity buyout funds. That amount dwarfs the cash directed to venture capital, real estate funds, private debt, hedge funds, and just about any other form of alternative investment, according to McKinsey.
It's not hard to see why: Investors have been told over and over again that these private equity funds produce the best returns, far outperforming the stock market (and just about everything else). As a result, private equity has become the hottest home for institutional money, whether that of pension funds, endowments, or sovereign wealth funds. Lately, retail investors have also bet big on the strategy.
But private equity's returns increasingly may not provide the stellar performance that investors have been sold – and the returns can be misleadingly calculated in a way that overstates success.
As of September 2020, private equity funds had produced a 14.2% median annualized return, net of fees, over the previous 10 years, compared with 13.7% for the S&P 500 Index, according to an analysis of indexes by the American Investment Council, a lobbying group for the industry, using the latest numbers offered. Public pension funds invested in private equity actually had worse returns than from the S&P 500 Index – 12.8%, net of fees. (These returns, and others quoted in this article, do not include venture capital, which is typically viewed as a separate asset class.)
Ludovic Phalippou, a professor of finance at Oxford's Said Business School, came to a harsher conclusion in a 2020 research paper that looked at North American private equity performance for funds launched between 2006 and 2015. It found that investors could have done just about as well with a stock index fund during that period, while the fees paid to private equity firms came to at least $230 billion, enabling the number of private equity multibillionaires to jump to 22 in 2020 from three in 2005.
"The big picture is that they're getting a lot of money for what they're doing, and they're not delivering what they have promised or what they pretend they're delivering," Mr. Phalippou said in an interview.
The topic is so fraught that some people don't want to discuss it. The American Investment Council declined an on-the-record interview, as did the Institutional Limited Partners Association, which represents institutional investors in private equity. The California Public Employees' Retirement System, which recently announced it was adding about $25 billion to its $40 billion private equity portfolio, also declined to comment.
I actually think private equity merely matching the returns of the S&P 500 Index is a total failure, given its illiquidity and leverage. I think a better benchmark would be twice the index's return. No wonder nobody in the industry wants to answer tough questions...
2) I want to highlight one part of the e-mail I sent yesterday to my coronavirus e-mail list: an exchange I had with one of my readers, a fireman who's chosen not to get vaccinated. While we strongly disagree, it's a respectful conversation – a rarity these days! (You can read the entire e-mail here; to receive these e-mails going forward, simply send a blank e-mail to: cv-subscribe@mailer.kasecapital.com.)
"Whitney, Please consider this feedback to fall neither in the love or hate category. It is, like what you offer in your newsletter, an educated opinion that I'd like to share with you and your readers. This feedback will offer perspective different than yours. It does not mean I hate you or your opinions. It only reflects that my experience and perspective is different than yours.
"I have no problem with people getting vaccinated. I also have no problem with those who don't get vaccinated. I am a believer in personal choice, provided it does not intentionally bring harm to others. I empathize with those most acutely affected by the pandemic, as my father died of complications related to COVID.
"I have chosen to not be vaccinated for several reasons. Some of these reasons are as follows: 1. As a firefighter, I have contracted COVID twice and fortunately had mild symptoms. 2. I have an elderly mother who, even though I was around her during both of my infections, did not contract COVID. I do her shopping and house maintenance and visit her several times each week. Turns out, we both know how to wash our hands, not cough/sneeze on each other, clean our homes thoroughly, etc. 3. I am healthy, exercise regularly, and take supplemental vitamins that boost my immune system. 4. I have a very robust immune system, to begin with, probably because I have cared for sick people for a living for the past 23 years. 5. I have seen too many people who are suffering from side effects related to the shot(s) and boosters. I have done CPR on at least a dozen people ranging in age from 45 to 70 who had little or no past medical history, got the shot, and suffered cardiac arrest with little indication as to why other than the shot. 6. The vaccines do not prevent COVID infection. They do not prevent transmissibility. They do not prevent death. They may reduce the severity of infection for some. They may make some sick, very sick, or even cause death (see my personal experience above).
"Again, I have no issue with people getting vaccinated. If someone believes the vaccination gives them a level of protection they wish to have, I wish them well. If someone wishes to forego any such potential additional protection, I wish them well, too. I believe that no person should be punished for making their own personal choice about their medical options. No person should have their personal freedoms or opportunities taken away because of their medical choices. People make personal medical/lifestyle decisions that are not in their own or society's best interest all the time, and society does not punish them for their actions. These decisions often times permeate society in a disadvantageous way. Hospitals are overrun by people and their 'selfish' choices every day. Consider for a moment: car accidents, obesity, smoking complications, being uneducated, illicit drug use, sports (extreme or otherwise), etc. Everyone lives their life out of some self-interest in some way. We do the things we think will make us happy. Everything an individual can choose to do can and may have a negative impact on society. Being unvaccinated is just one of these many choices. Being vaccinated is also one of these choices... again, see my personal experience above.
"The world would be better if more people chose to love their fellow human beings for who they chose to be and accept the choices of their fellow human beings as often as possible. I do not wish to control anyone or force their decision-making. I also wish for nobody to force my decisions. The most sacred of all things in this world is the freedom of choice.
"Thanks for considering my perspective" – Greg S.
I replied:
Hi Greg,
Thanks for sharing your perspective, and I'm so sorry to hear about your father.
Overall, we'll have to agree to disagree. Here are my thoughts on some of your comments...
I don't think you should be forced to take the vaccine – but I don't think you (or any other frontline worker) should be allowed anywhere near the general public until you've been vaccinated. That's what you're missing – your choice isn't just about you... and it's about everyone else.
Your choice not to get vaccinated puts everyone else at MUCH greater risk – especially since you're in a job that requires close contact with your fellow firefighters and the general public.
How would you feel if you rush into a burning building, save an old lady's life – but give her COVID that kills her a month later? For all you know, you could be a one-person super-spreader right now.
As to your fifth point about "I have seen too many people who are suffering from side effects related to the shot(s) and boosters," I have three responses:
1) I'm highly skeptical that the average firefighter in the U.S. has treated "at least a dozen people ranging in age from 45 to 70 who had little or no past medical history, got the shot and suffered cardiac arrest with little indication as to why, other than the shot," so I suspect you're engaging in a bit of hyperbole or are an extreme outlier.
2) It wouldn't surprise me, however, if the average person – and certainly a front-line responder like you – knows one or more people who get a vaccine shot and then, shortly after that, something bad (like cardiac arrest) happens. But one or more – even thousands – of cases like this, by themselves, tell us nothing about the safety of vaccines. Here's why...
As of this morning, 8.1 billion doses have been given worldwide, with 37.1 million more administered daily (source). When we're talking about such large numbers, it's a mathematical certainty that millions of people will have bad health outcomes shortly after a vaccination shot – because that's what happens every day to a certain percentage of people.
Imagine you checked the people you treated for cardiac arrest and discovered that half of them had shopped at Walmart (WMT) in the previous week. Would you then conclude that Walmart was the cause?
3) Countless studies have shown that most people make irrational decisions based on compelling stories that they hear and/or vivid recent experiences they have. It's a phenomenon one of my friends calls "the tyranny of the anecdote." I try to avoid this common mental trap by seeking out and carefully analyzing data. And in the case of the COVID vaccines in the U.S., it's not a close call – the data is OVERWHELMING that vaccines are both extremely safe and highly effective.
Regarding your sixth point: "The vaccines do not prevent COVID infection. They do not prevent transmissibility. They do not prevent death. They may reduce the severity of infection for some. They may make some sick, very sick, or even cause death (see my personal experience above)."
Forgive my bluntness, but you have fallen for classic anti-vax garbage. NOBODY claims that vaccinations prevent COVID infection. But they do reduce the chances by roughly 80%. And even more so – 90% to 95% reductions in hospitalizations and deaths.
As for transmissibility, this is a little more complex. Another one of my readers asked about this:
"Both vaccinated and unvaccinated people have been shown (according to the Center for Disease Control and Prevention) to be capable of carrying similar virus loads and thus have similar potential for infecting other people. So why do you think unvaccinated people are endangering others?" – Lance F.
I asked Dr. Kevin Maki to reply. He wrote:
"Capable" does not mean just as likely. It's true that when a person gets infected with the delta variant, the peak viral load seems to be similar, whether vaccinated or unvaccinated. So yes, at peak viral load, the ability to transmit is likely similar. However, there is some evidence that viral load declines more quickly in the vaccinated – and thus the ability to transmit.
More importantly, your reader isn't accounting for one major difference between vaccinated and unvaccinated: Those who have been vaccinated are far less likely to get an infection. So, if we compare two groups of 100 people who live in a community experiencing a COVID wave, 100 of whom are vaccinated and 100 of whom are not, perhaps 40 will get infected in the unvaccinated group, and only about eight will get infected in the vaccinated group. Even if the eight are equally likely to transmit to others (doubtful, see above), there are 32 more people infected who are unvaccinated, so their contribution to transmission will be much higher in aggregate. Accordingly, the higher the prevalence of vaccination in a community, the fewer cases should occur during a given wave of infections.
Here's an analogy that might resonate with you... Imagine there's a home worth $1 million located in an area that's become high-risk for wildfires – as such, no insurance company will cover it. The homeowner could, if he chooses, spend $20,000 to upgrade to the latest fire safety standards: cutting back nearby shrubbery, replacing the roof with fire-resistant tiles, etc.
As a fireman and therefore an expert in these matters, you sit down with him to persuade him to make the investment. But he replies:
"The steps you recommend do not prevent my house from catching fire if a wildfire comes. They do not prevent it from burning to the ground. Even if I don't make these investments and a wildfire hits this area, my house still might be fine. And even if I do make these investments, my house still might burn to the ground. So why should I do it?"
My guess is that you would be very frustrated with somebody spouting such foolishness (welcome to my world) – but would resist the urge and instead try to patiently explain that while there are no guarantees, by upgrading to the latest fire safety standards, he will greatly increase the odds that his house will survive a wildfire. Therefore it's a no-brainer to make a one-time expenditure equal to a mere 2% of the value of the house.
Lastly, the strongest counter-argument that I'm sure you would make is that you've already had COVID and therefore have natural immunity. There is indeed some validity to this argument, but the problem is that the science around this is very uncertain. Some people do indeed develop natural immunity, but many don't, or it fades quickly.
As best I can tell, the very best immunity is held by people who had COVID and then got one dose of one of the mRNA vaccines. If you want to argue that you only want to get one dose, not two, I'm very open to that...
Believe it or not, this exchange was only four pages of a 16-page e-mail. Click here to read the rest of it, which includes:
- The latest pandemic dashboard
- South Africa omicron cases spiking but may be less severe
- Why vaxxed folks are an increasing percentage of those hospitalized
- Studies on mask-wearing
- The latest data on Sweden's pandemic experience
- Q&A with two readers
- More reader e-mails
3) We arrived yesterday at the base of Cotopaxi, the highest active volcano in the world at 19,347 feet, which we'll hopefully be climbing tomorrow night from roughly midnight to dawn, weather permitting.
Yesterday we drove a little over an hour from Quito toward Cotopaxi and stopped on the way to do an easy five-mile hike up a river gorge, the highlight of which was a beautiful waterfall:
On Saturday, I had lunch with one of my readers, who's from Quito, and his Dutch girlfriend:
I love meeting my readers during my travels!
I posted more pictures and descriptions of the past few days on Facebook here and here.
Best regards,
Whitney
P.S. I welcome your feedback at WTDfeedback@empirefinancialresearch.com.