Private equity, Alts, debt

The market is awash in private credit strategies offering, in many instances, apparent double digit like returns.

Sounds great!

And yet, we don’t allocate much (scarcely any) to these types of managers within our DAA funds.

Firstly, we do (dogmatically perhaps) think some of the returns are illusory. Small cap value equity managers can replicate some of the factor returns within PE, and credit risk + marks being whatever you want them to be can explain PC.

However, there are some magnificent managers out there, and given the (at first blush) fact that median returns have been higher outside of traditional assets, there’s some very understandable desire to hunt in the space.

However, the below graph does a good job of highlight the real problem that we face. Picking the right manager. It’s hard. Very hard. You can get the DAA call right, and still dust it all on the wrong manager. The dispersions are so large, you can drive a truck right through your alpha.

Picking managers even within traditional DAA is hard (e.g, the right small cap value manager!) but at least the dispersion of returns is not quite so enormous.

Now, bear in mind the same graph can be used to drive the equal and opposite statement home. E.g. “Look at this dispersion! It’s so large the benefits from active manager selection can be enormous!”.


The note concludes a bit lamely, but at least walks you through some of our considerations in the space.

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