Abell: Data shows almost zero correlation between buying cheap and PE returns
Alex Abell · Alex Abell - Lower Middle Market Buyout Investing at RCP (EP.383) · May 2, 2024 · at 26:07
Alex Abell, Managing Partner at RCP Advisors, discusses quantitative deal-level benchmarking and the relationship between entry multiples and buyout returns.
0:00 / 0:20exact quote · 20.1s
720p mp4 · rendered on demand · StarZero watermark
“You might say, well, buying cheap is better, but when you look at the actual data, you do a regression analysis, and so maybe you would expect to see it in the cheaper you bought, the return would be up and to the right. And what we really see is that, one, there's almost no relationship, and the R-squared is close to zero, usually de minimis, and there's a reason for that.”
quote is from the automated transcript, cleaned for reading: filler sounds and stutters are removed, nothing is rephrased. names can be misheard (the analysis reads context, assessments check outside sources). how →
More from Alex Abell
Abell: Vintage year benchmarks fail to match private equity investment timing
“A vintager benchmark has some significant flaws in it. First off, it puts against managers that have started their funds at similar times. These are managers that, of course, are investing over a two to five year period, depending on how quick or how slow they…”
Abell: Anyone Claiming to Pick Top-Decile PE Managers Is Lying
“And I say probability because if anybody tells you they can pick the top decile manager of any given vintage year, they're completely wrong, right? And lying.”
Alex Abell: Many GP-led continuation vehicles suffer from significant conflict issues
“Now, we see tons of these things, and many of them have significant conflict problems. They have significant issues around structure and alignments.”
Abell: Larger private equity investments historically yield lower returns with less risk
“We were doing at BlackRock larger investments on the fund side, larger investments on the co-invest side and secondary side, and that part of the market has historically generated less returns, and certainly in a less risky way as well.”
Abell: Institutional LPs often deploy $10 billion with just three people
“The problem is that for most limited partner organizations, even sometimes a very large institutional platforms, they don't have a huge staff like a private equity fund of funds does. They might have two or three people working on investing ten billion dollars…”