What we’re reading (10/2)
“Private Equity is Notoriously Opaque. Researchers and Investors Say This is No Longer OK.” (Institutional Investor). “Measuring performance with internal rates of return…makes it difficult for investors to compare the returns of different private equity funds and to contrast the strategy with what they would have earned in the public markets. Monk and his co-authors argue that the measure is heavily influenced by returns earned early in a fund's life. As an example, the report cites private equity funds from the 1970s and 1980s, whose returns earned since inception are exceptional because of this property.”
“Employees’ Online Comments Can Predict Corporate Misconduct, Study Says” (Wall Street Journal). “A study from researchers at Harvard Business School and the Netherlands’ Tilburg University found that information extracted from employee reviews left on company-review site Glassdoor.com was useful in predicting misconduct beyond other readily observable factors, such as a firm’s performance, press coverage, industry risk and prior violations.”
“Climate Change Is The New Dot-Com Bubble” (Wired). “There are good VCs being venturesome with their capital. There are funds that are investing in green things. But—and God help me for wishing it—there's no Google, no Apple or Microsoft, no monster in the middle taking its cut. There isn't one carbon market; there isn't one set of standards to follow; there are dozens of options, which means there isn't really anything at all. Whole careers are dedicated, wonderful people, great science, online carbon calculators, but for right now it rounds to nothing. Amazon Web Services hosts open climate data, but I wish there were an AWS for climate. I wish I could tell you what it should do.”
“China's Housing Conundrum” (Project Syndicate). “[E]ngineering a slow, controlled deflation of China’s real estate bubble will not be easy. With the banking sector having lent heavily to residential projects (Evergrande alone has borrowed from almost 300 banks and financial firms), a sharp drop in housing prices could prove painful and cascade catastrophically into other sectors. In principle, banks are protected by substantial down payments, often amounting to 30% or more of the purchase price. But given China’s epic house-price boom in the twenty-first century, 30% may prove not nearly enough when a collapse comes. (After the 2008 financial crisis, US housing prices dropped by 36%, and by significantly more in some regions.)”
“Only 35% Pass Wall St.’s Toughest Test. How Much Does That Matter?” (New York Times). “Over time, the C.F.A. curriculum came to be seen as foundational knowledge for analysts and portfolio managers who were willing to plow through the material to gain an edge. But as the designation became more popular, pass rates dropped. The number of candidates peaked above 270,000 in 2019, and an average of 44.2 percent passed.”
