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Private equity fees
Summary
Written transcription
Eliott Vincent: And these still-attractive performances, it's true that this is a subject we often hear about, so it's obviously one of the things we look at. It's only natural. These absolute and relative performances can be replicated, despite the issue of fees, which are reputed to be high in the private equity asset class.
Dimitri Bernard: Well , yes, the reality is that private equity fees are high, but they reflect the operating costs of the private equity industry. The best funds will allocate significant resources to each transaction to acquire and transform their portfolio companies. And they engage a range of experts—whether in strategy, margin improvement, tax, legal matters, and increasingly, all aspects of ESG. All these initiatives they must undertake are very costly. But I would point out that, unlike publicly traded companies, information in private equity—that is, everything that is not publicly traded—is not public and, in any case, is less standardized. There is truly a very labor-intensive process of preparing and analyzing this information; this is the entire Due Diligence phase.
Eliott Vincent: There's a highly competitive advantage for a fund that knows a target it wants to acquire perfectly well before anyone else.
Dimitri Bernard: Yes, and I would remind you that when you invest in other asset classes, like real estate for example, there are costs that are sometimes better known, but which are essential to the life of your investment. So with real estate, you have your notary fees, your work, but this doesn't prevent the asset class from being able to generate capital gains. So, in the final analysis, you have to look at private equity, like any other asset class, not in the light of fees, but in the light of performance net of fees. And that's what we've just been talking about, a performance that's almost double that of the equity market.
Eliott Vincent: So, with all that you've just mentioned, how do you explain the fact that today's private, individual investor has so little exposure to this asset class, when in fact it's where he or she can go in search of high returns to build up substantial financial wealth by using this pocket as a portfolio fund.
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