Cambridge Associates' Auerbach Expects PE Market to Keep Outperforming

The video discusses private equity's performance, highlighting its 13% annualized return compared to the S&P 500's 9%. It explains the internal rate of return and how it can be manipulated through early exits and commitment facilities. The role of low interest rates in enabling leverage and high valuations is examined. Valuation challenges for private companies are addressed, using methods like discounted cash flow and market comparables. The video also explores political and market dynamics affecting private equity, including increased transparency and attention from public investors.

What is one reason private equity funds might outperform public market indices?

• They invest in only large companies.

• They use a monolithic strategy.

• They unlock value in companies they control.

• They avoid any form of leverage.

How can internal rate of return (IRR) be artificially improved?

• By investing in public markets.

• By avoiding any form of borrowing.

• By using commitment facilities.

• By delaying exits indefinitely.

What role do low interest rates play in private equity?

• They have no impact on private equity.

• They facilitate higher leverage and valuations.

• They increase the cost of borrowing.

• They decrease the availability of leverage.

What is a common method used to value private companies?

• Daily stock trading analysis.

• Public market comparables.

• Random sampling of market data.

• Ignoring market trends.

What political figure is mentioned in relation to private equity scrutiny?

• Justin Trudeau

• Boris Johnson

• Elizabeth Warren

• Angela Merkel

Why is private equity attracting more attention from investors?

• Due to its declining returns.

• Because of its passive investment strategies.

• Due to its transparency and active returns.

• Because it avoids public scrutiny.

What has increased in private equity since the global financial crisis?

• Secrecy and lack of information.

• Transparency and public availability.

• Interest rates and borrowing costs.

• Investment in only public companies.