The Price of Private Funds Is Less Wrong

If Prof. Malkiel had taken his “Random Walk” in Midtown Manhattan, the private capital industry’s enclave, he could have found that prices can be “less wrong” there than down Wall Street – to a level that could offer, over the life of a private fund, reasonable arbitrage opportunities but not without risk.

The DaRC Side of the J-Curve

It’s not a “J”, it’s an “S”!  Coming out from the DaRC Room, that’s what the picture is telling!

Volatility Inhibits PME’s Meaningfulness

A recent post that summarises most of the history of the post-IRR performance calculation and valuation methodologies for the private capital industry has been written by Mr. Jesse Reyes, widely regarded as one of the leading experts of the field.

Private Capital Beta: Theory Reloaded

In a recent Financial Analyst Journal article titled “Do (Some) University Endowments Earn Alpha?” the authors find that endowments mostly fail to deliver alpha and what looks as alpha can be almost totally explained by the inclusion of alternative investments in a static asset allocation. Digging further, the authors find that there is no strong statistical evidence of selection skill relating to the private equity and hedge fund portfolios.

Private Capital Beta Revealed

Private capital beta – the mythological entity whose existence and value have been denied for decades on the basis of the evidences drawn from the dispersion of IRRs of private capital funds – may be among fund investors, new DaRC Room evidences reveal.

Use the DaRC Room, Ye Who Venture Here

A very interesting post from Dan McCrum on the FT Alphaville blog, attractively titled “Abandon all hope, ye who venture here” unearths some truths, (is misled by and) fosters some consolidated misperceptions while opening up for some comments – a couple of which I made at the bottom of the post.

Please Come In

A Dark Room is where a film is turned into clear pictures. In the DaRC Room, the risk-reward profile of private capital funds becomes immediately visible and finally intelligible within modern arbitrage pricing frameworks.

The Quartiles’ Oxymoron

I could not resist tying a rhetorical figure with financial mathematics. But there is no better description for IRR quartiles – an oxymoron.

In the private capital industry jargon, quartiles are ranked sets of IRR.

But, it is a well-established notion that IRR should not be used for ranking investments!