Read @ryan_caldbeck’s thread, then come back.
We’ve been exploring this topic @adventur_es for 3-4 years now. In addition to an information advantage and a large sample size, transaction costs and governance are crucial components in private transactions. https://t.co/BQD1EqxI4s
These two additional components, transaction costs and governance, comprise friction that is 1000X higher than public markets. Quant hedge funds can identify and purchase a stock in a blink at almost no cost and with no governance function, then sell it just as easily.
PE must hire talented (expensive) people to find, negotiate, diligence, document, govern, and eventually created a negotiated sale. This hardship is costly, but also provides opportunities for alpha.
In PE, here’s how a quant system might work at scale:
Recently asked, “What are the ten biggest ideas that changed your life?” Great/hard question. Here's where I landed...
1) Imago Dei: Every person is inherently valuable independent of behavior and beliefs. Everyone matters. Treat people accordingly, without exception.
2) Rationality: In the moment, people act rationally, always. The question is what information, preferences, time horizon, and biases came into play? Removes ability to write-off people/behavior. Forces learning and empathy.
3) Meaningful = Hard: If something worthwhile appears easy, it means I got lucky. Or, I've never done it. Crucial to setting opportunity costs, evoking gratitude, suppressing envy, and cheering others on.