Opinion
Nesbitt: Only about a dozen hedge funds really matter today
“And I don't know, there are, at least in my opinion, maybe a dozen hedge funds that really matter today.”
Insight
Nesbitt: Unfunded primary commitments will cause PE interval funds to fail
“If you use the typical institutional playbook, you can't, okay? If you're doing primaries, you got these big unfunded commitments, that implementation approach will not work. You're going to get yourself in trouble. But first of all, you've changed strategy on…”
Prediction Open · timeframe Oct 2029
Nesbitt: Private debt will maintain a 3% to 5% illiquidity premium
“I can go back to the eighties and tell you that everybody thought the private equity premium would go away. And it's really been pretty consistent at three to five percent. I expect the same on the private debt side.”
Insight
Nesbitt: Asset allocation determines returns more than manager selection
“Success there was on the premise that we spend 90% of our time on manager selection, but really it's asset allocation that's going to determine returns.”
Insight
Nesbitt: Over-diversifying into too many asset classes provides no performance benefit
“One of my gripes is sometimes people over-diversify. They're not sure, so they end up with Godly number of asset classes, which really doesn't do anything from a performance point of view.”
Insight
Nesbitt: Private debt returns depend on beta because alpha is limited
“Most asset classes, there's upside optionality, fixed income, and private debt as well. It's downside optionality, and so there's diversification, and there are a lot of good managers, and so we focus a lot more on beta than we do on alpha, which is limited in…”
Opinion
Nesbitt: Institutional consulting is an undifferentiated, zero-growth industry
“The consulting business, in a sense, from a business perspective, has gotten very concentrated and virtually zero growth, where you probably have five, maybe 10, but not much more than that, really sharing the pie amongst themselves. Sometimes it seems to be a…”
Insight
Nesbitt: Asset classes cannot gain institutional adoption without benchmark indices
“It's not going to take off until it has an index. I often say it's in the Wizard of Oz, the scarecrow. He wants to be recognized as smart. He is smart, but Wizard says, all you need is a diploma. And then everybody will think you're smart. I've discovered in t…”
Opinion
Nesbitt: RIA channel was historically targeted with substandard, high-fee products
“Sales into that channel were product pitches and substandard products, with high fees.”
Opinion
Nesbitt: Private markets remain inefficient unlike public markets
“It just seems to me the world has basically gravitated slowly to the efficient market thinking, except for private markets, where arguably there are no markets, and where the real economy is inefficient, and you can take advantage of that.”
Disclosure
Nesbitt: Cliffwater was founded because 60/40 could not hit actuarial targets
“Going into the new century, I was convinced that it was going to be alternative investments, that no way, sixty-forty was going to meet the actuarial rate. My feeling was in alternatives, we could add three percentage points net, shift up the efficient frontie…”
Insight
Nesbitt: Manager selection drives returns in VC far more than beta
“In venture, you can make the right asset allocation decision, but if you can't get the best managers, or at least the top quartile managers, it's not going to matter. It's not going to deliver. That's most true in venture, maybe a little less so in buyout and …”
Insight
Nesbitt: Mid-sized RIAs lack the resources to conduct alternative investments
“These RIAs, generally they manage between one and maybe twenty billion. There are very smart business people. They have some investment skill, but they don't have the resources, particularly the resources to do alternative investments.”
Assertion Supported
Nesbitt: Cliffwater interval fund met all redemptions except one COVID quarter
“The only thing that's restrictive is getting out. So you can only get out once a quarter, generally a fund level gate of five percent. But for us, except for one quarter during COVID, anybody who wanted to get out on any quarter could get out.”
Assertion Supported
Nesbitt: Cliffwater flagship fund exceeds $20B, offering $1B quarterly repurchase
“Our flagship fund is over twenty billion dollars, so a billion dollars will offer repurchase. We have to have liquidity to meet that potential of a billion dollars, and so we don't want to hold cash, because cash is a drag, People are paying us to hold private…”
Disclosure
Nesbitt: Cliffwater seeded its PE interval fund by acquiring an insurance fund
“I will say, on the private equity, we didn't launch from zero, just cash. We negotiated with a large insurance company that had a private fund, and we bought that private fund, flipped it to an interval fund, and on we went.”
Assertion Supported
Nesbitt: Average private debt loss rate matches leveraged loans at 1%
“The average loss rate in this market, like the leveraged loan market, is one percent.”
