Greed in Private Investments?
Updated: Nov 11, 2019
Grow at any cost - for whom is this good? Raise more AUM, deploy the AUM into larger deals (already an overly competitive market segment with high prices and over reliance on leverage to generate often mediocre returns), collect management fees, and do it all again with more scale, until one day you can't....
Prioritizing asset aggregation and accumulating resulting fees translates inevitably into prioritizing quantity of AUM over quality of investment decisions. This behavior is the exact opposite of what needs to happen. Quality must be the first priority at all times. Incentives must be aligned and in their model, they are not. As the article (link below) points out, Goldman and Blackstone, in chasing AUM and the associated management fees that come with them are not alone in pursuing this flawed-for-investors strategy. They are betting that their names will carry them to continued success, while glossing over the inherent risks associated with pursuing their accelerated asset gathering activities. In the long run, quality will always win. And in time, more smart investors will look deeper at risk and risk mitigation before making investment decisions. Click here for the article.
There is a Better Way!