Cape May Wealth Advisors

Private Equity Berlin Roundtable 📈 Gemeinsam mit Jan Voss von Cape May Wealth durften wir letzte Woche rund 20 Teilnehmerinnen und Teilnehmer aus der Family Office Community in Berlin zum Private Equity Roundtable willkommen heißen. Wir bedanken uns bei allen Teilnehmenden für den bereichernden Austausch über das aktuelle Private-Equity-Umfeld sowie individuelle Investorenbedürfnisse und Investitionsstrategien! #PrivateEquity #Networking #FamilyOffice #Berlin #CapeMay #YIELCO

The Volatility Laundering Misconception 🔀 I recently spoke to an investor who made a rare career move in the investing world: They started out as a quant investor working for a public equities-focused hedge fund before moving to an alts-focused investing role for a family office. Why is that a rare career move? Because most quant-focused investors seem to detest private assets. While public markets see any market information perfectly and fairly reflected in prices on a daily basis, private markets show just monthly, quarterly, or even less frequent prices, which are (according to quant funds) not set by supply and demand but by the private markets investors themselves. The key term here is volatility laundering, coined by AQR’s Cliff Asness: By having to post as little as four price points a year, which private equity investors or other GPs can (allegedly) partially influence, alts such as private equity undersell their volatility, and thus their risk. To be clear: I fully understand, and (as you will see below) agree with, the allegations behind volatility laundering. As I outlined in The Quantitative Approach to Private Equity, I detest the private equity “chart crimes” in which GPs show slight outperformance but significantly lower volatility, simply because PE has fewer price points. Anyone thinking that private equity or private debt are less risky than traditional public equities or fixed income should probably stay away from any investment, private or not. But I think that the volatility laundering debate is overblown: What started out as a rational debate turned into a screaming match in which quant investors cry wolf about topics that alts investors never really disagreed with. Want to learn more? Make sure to follow me here on LinkedIn - or already read it in the Cape May Wealth Weekly newsletter. Link in the comments. #privateequity #hedgefunds #assetallocation

Direct investments in venture capital is not worth the effort for most family offices. 🖐 Why? First, venture capital is very competitive. 🏃♂️ Unless you are well connected in your local ecosystem, it is likely that the best deals never cross your table. Adverse selection is real. Second, many family offices don’t understand the venture capital ‘power law’. 📈 They are too focused on downside protection, leading them to miss out on winners due to a lack of risk tolerance. Third, and perhaps the biggest miscalculation: Even if you can get access to good deals, and structure your portfolio right, the absolute return might not be worth it. 💸 Yes, an investment of 100K€ might turn into 1M€ or even 5M€. But if venture is just a tiny allocation (<5% of your overall portfolio), even a good return might not be worth the effort. So why am I telling you this? Because this way of analyzing venture capital direct investments (admittedly, your view might differ) can, and should, be equally applied to any other asset class that you aim to invest in. It’s the question of where, and how, you can generate Alpha: Identifying where you as a private investor, family office or even institutional investment firm can generate outsized excess returns on your financial and time investment. Let me take you through the framework that I used to find my Alpha, and that I apply when I work with my clients - this week on the Cape May Wealth Weekly newsletter, and of course also here on LinkedIn. Link in the comments! #venturecapital #assetallocation #wealthmanagement