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Private Equity Underperforms Public Equity? What is Private Equity?

A commenter on the Opening Bell this morning linked to an FT article suggesting that private equity actually (surprise suprise) underperforms major public equity benchmarks, like the S&P 500. We're a bit skeptical of most data that tries to aggregate...

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Well, its a rather inchoate concept in my head, but basically, a non-zero-sum game is where you create rights. When you buy a stock and some warrants that are already trading, you are in a zero-sum game, because you are merely buying what already existed and was priced fairly (on average). So buying listed securities, or passively buying someone's hot dog stand, are all zero-sum. Buying unlisted securities and negotiating rights to buy more at a fixed price, buying a hot-dog stand but then deciding to sell lemonade as well, that's non-zero sum. So the extra value can come from expropriation (demanding rights and warrants that dilute existing claim holders--usually because they are desperate) or value creation (providing complimentary services). The key is, you need a lot of capital to be able to demand rights and warrants, so for most investors that's not feasible. As per providing value no one thought of for existing small operations, that's more feasible, but again, it's nontrivial in terms of resources or effort.

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