A lot of the endowments are struggling with the recent market meltdown. Unfortunately, my alma mater happens to be one of the worst performers.
As an aside, I have always wondered why investors in private equity don’t hedge their portfolios against long bear markets? The biggest risk factors to a PE portfolio are a bad economy coupled with a long stock market decline – the exits disappear, there is no liquidity, funding is scarce, multiples contract, and the underlying businesses face tougher conditions. Why in the world wouldn’t you hedge that, or even run the allocation with a constant % hedge?
Using something as simple as a long term moving average would work to take out some of the volatility and drawdowns. If you used the US private equity ETF PSP (yes, I know that is not a good proxy for private equity, but this is just an example), and used a long term moving average and assuming you sold (or hedged) the position at 20, which is very conservative, you would have avoided (or hedged out) a 60%+ decline. Isn’t that the main risk you face as a private equity investor?
The Baltic Dry Index is down 93%.
A masterful account of today’s money culture, showing how the underpricing of risk leads to catastrophe.
When it comes to markets, the first deadly sin is greed. Michael Lewis is our jungle guide through five of the most violent and costly upheavals in recent financial history: the crash of ’87, the Russian default (and the subsequent collapse of Long-Term Capital Management), the Asian currency crisis of 1999, the Internet bubble, and the current sub-prime mortgage disaster. With his trademark humor and brilliant anecdotes, Lewis paints the mood and market factors leading up to each event, weaves contemporary accounts to show what people thought was happening at the time, and then, with the luxury of hindsight, analyzes what actually happened and what we should have learned from experience.
As he proved in Liar’s Poker, The New New Thing, and Moneyball, Lewis is without peer in his understanding of market forces and human foibles. He is also, arguably, the funniest serious writer in America.
also on the way:
Whenever you hear “the death of” something, it is usually a good time to invest.
If you need some humor in these markets, how about Conan O’Brien’s top 15 funniest moments? Even better, the top 10 most controversial moments in South Park history, and the 20 funniest moments on The Office. I recently watched the #3 South Park on a Virgin America flight (which is 10x the airline of any competitor btw), and I swear half the airplane was dying laughing. . . (Hat Tip: Sea).