Disintermediation is Coming to Finance

Private equity investments are a great vehicle to boost investment returns but they’re not cheap & are difficult to access. The Wall Street Journal reports this morning: “With the number of firms traded on public stock exchanges down by half over the past 20 years, private-equity funds also offer a way to “participate in the greater percentage of the economy that is privately held,” said David O’Meara, senior investment consultant at Willis Towers Watson. Critics note the effect fees can have on fund returns. Private-equity fund managers generally collect a 2% management fee plus 20% of the profits, versus less than 0.5% a year, on average. Private-equity funds must generate consistently higher returns to compensate for those fees and the extra risk investors run when buying illiquid securities, said Rosemary Batt, a professor at Cornell University. After fees, they “shouldn’t just meet the stock market but beat it” by at least 3 percentage points, she said. It is hard to tell how much return private equity delivers.”

The Inveniam view is this will change over time. Disintermediation is coming to finance based on better data on private markets and price discovery. Inveniam is ready to make this difficult task a routine operation.

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