Inker: Assuming an automatic illiquidity premium across private equity is dangerous
Ben Inker · Ben Inker – Value Investing at GMO (First Meeting, EP.17) · Mar 30, 2020 · at 1:03:00
Ben Inker, Head of Asset Allocation at GMO, discusses the flawed assumptions institutional investment committees make when allocating capital to private equity and leveraged buyouts.
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“This assumption that you get paid an illiquidity premium for anything that happens to be illiquid is I think dangerous. I think it is going to cause you not to be focused on the question of, all right, if I think this is about operational excellence, why do I think that this company has unique operational excellence? Why do I think as the world has changed and we have all learned from what these private equity firms have done that they have a sustainable advantage there? It's not that there aren't private equity firms that can answer those questions well, but if you don't ask those questions, you're not gonna know which ones, and you're probably just gonna wind up paying high fees, To managers, some of whom do not have the characteristics that would be required to add the value you are assuming you're going to get.”
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