Rerun: Ep63 “What Explains the Growth of Private Equity? A Different Perspective” with Ludovic Phalippou

[MUSIC] Welcome to the Lawter Institute at the University of Pennsylvania. I'm Jules van Binsberg, Director of the Institute and a Finance Professor at the Wharton School. And I'm Jonathan Burke, a finance professor at the Graduate School of Business, a Stanford University. This is the All-Out Equal Podcast. [MUSIC] Welcome back everybody. Today we're going to talk about private equity markets. Private markets have grown a lot in the last couple of decades, not just on the private equity side, which we've seen grow by a lot. And we had an episode in that before, but also private debt markets, which means that private equity firms have increasingly started to give corporate loans to corporations. And the question is, why are private equity firms the right party want to hold these positions in firms on an equity side, but also on the debt side, why are they the right party to provide these loans to corporations? I think Jules, a possible explanation is what I call the fundamental theorem of corporate finance. On the one hand, you could have a private firm run by a single entrepreneur. The firm will be very well run because the entrepreneur will have all of these assets in the firm. And he'll look after the firm very well. But the downside is, because all of these assets are in the firm, he's very exposed to the innocent credit risk of the firm. So he has takes on a lot of risk. The alternative is to run the firm as a public corporation with diversified shareholders or shareholders that are diversified across lots of firms. So in that case, the shareholders of the firm are not holding innocent credit risk. But because there's so many of them, nobody's looking over anybody's shoulder. And so the firm is not as well run. And I call that the fundamental trade off of corporate finance. And perhaps private equity can solve that trade off. Indeed, so private equity firms, what they generally do is that when they hold equity stakes in firms, they also provide board of directors to the board of the firm, which means that they're very actively and closely involved in the firm. And of course, the investors that want to have the diversification, they can invest their money with the private equity firm who already holds multiple firms. But in addition, these investors can hold stakes in multiple private equity firms or even part of their money in private equity firms and the rest in public firms. And so in this way, you can get and the monitoring services coming from the private equity firm as well as the diversification where the investors are not particularly exposed to any individual firm. Yeah, so it does seem as if this solves the problem. But of course, if the private equity firm has lots of portfolio companies, then there's a limit to how much monitoring they can do. And if the investors are invested in lots of private equity firms, there's a limit to how much monitoring the investors can do with the private equity firms. So perhaps we've just moved the problem further down the principal agent chain, having said that we do find in public markets the same intermediation today, most individuals don't hold individual shares. They hold shares through mutual funds. So there we see the same intermediation. So maybe it's just another example of the intermediation that's necessary to make financial markets work. Absolutely. And so I think that one of the underlying assumptions that we have here is that for whatever reason, this monitoring of firms by investor is important. Right. If monitoring wasn't important, I don't think it would matter very much how you would do the intermediation. And so in many ways, I think that what the private equity and the private debt firms are selling is that they're better at this monitoring. They're better at collecting the relevant information to be able to do this type of monitoring. And therefore, this could potentially lead to a better allocation of resources compared to the alternative model, where less of this monitoring would take place. But what also fascinates me, Jonathan, though, is that we've seen shifts back and forth between public markets to private markets, the trend in the last couple decades is the shift towards private markets. So if we wanted to have a rational explanation for why this is happening, and we stick with the theme that we just introduced, does this then mean that monitoring by private parties has become more important over the decades. And that's one of the reasons why we're seeing the shift and alternative explanation that we've already introduced in a previous episode was, well, you know, regulation in public markets has become so prohibitive and so difficult. That that has just pushed investors away from public markets towards private markets. But maybe there's also something to say for the argument that monitoring services have just become more valuable over time, maybe due to a change in the way the economy is organized or the types of firms that are currently dominant. Yeah, and another issue, which I think is a big one in this space is that in public markets, it's much easier, shall I say, to measure performance than it is in private markets. And, you know, generally the data for private equity firms is all self-reported. So it's difficult to trust the data, but with that said, what's interesting is a dichotomy in academics on the one hand, many academics and look at public markets, look at the intermediaries and other was mutual funds and our suspicions of those into the duties, many academics think they add very little value. We've done podcasts on this and this should know that Jules and I disagree with that and they think our research shows the opposite that the mutual funds add a lot of value and are performing a very good roles into media. But what's interesting is the dominant view in academics of private markets is that the private market means you do a great job and they are adding a lot of value, even though the data is all self-reported. So there's, you know, sure the data says they are doing well, but of course they report the data themselves. And so it's interesting to see academics be less suspicious of private markets than they are of public markets. Absolutely, and I think to compound that issue, how do you really evaluate whether a private equity fund is doing a good job. Suppose there wasn't even the data reporting problem, there's this other important issue, which is what is the benchmark that you hold the private equity firm accountable against? In our mutual fund work, we've done quite a lot of work trying to make it clear how to construct real time available benchmark for investors that they could otherwise put their money in. But you know, if you would ask us to do that same thing for each private equity firm, I think we would have a pretty hard time really constructing a proper benchmark that we're very comfortable with. And if the benchmarking becomes hard, that allows for a large fudge factor in terms of trying to determine whether or not the private equity firm in terms of performance that did well or didn't do well. And so I think that, you know, these are all issues that deserve a lot of research and a lot of work that hasn't been done yet. I think that there's a lot of progress that could still be made there. But I think that one of the experts in the field on the academic side is our guest today and we're very happy to have him on the podcast. His name is Ludo Felipe, he specializes in private equity and asset management and is the author of the best seller, private equity laid bare. And I think it's important to note that Ludo has quite a critical view of private equity, particularly in the way that performance is being presented and performance is measured. And so he has made a lot of progress on this performance measurement issue. And we're very happy to have him with us today. Welcome, Ludo. Thank you very much for having me. So Ludo, you're an expert on private markets, especially private equity and private debt. We've seen significant growth recently and particularly in the recent decades. What do you see as the core economic or financial rationale for the existence of private markets? And we mean that question, particularly in the context of the contrast between private markets and public markets. What is it that private markets can do that public markets can't and vice versa? Yeah, I would say that at the core, if you look at supply and demand side for capital, who are the suppliers of capital with mostly university endowment, pensions, the old savings. And what is that they would get out of public markets? The main thing that public markets does is to give you millisecond level liquidity, continuous trading, etc. You don't care of the endowment doesn't care. Most investors don't care about that. You can say how about diversification, but print markets gives you a lot of diversification. If anything much better, diversification and polling markets would tend to have similar type of companies that are listed. And then you can say, well, investor protection. Well, you know, the regulator, if they so bothered, could regulate or have the same protection for private market participants as it does for polling markets. So on the supply side, that would be as aggressive as saying that, you know, it's the natural way in a modern economy is actually private markets, like in the 16th century in the Netherlands, then maybe the markets were more natural, but nowadays is not clear. This is where the supply of capital naturally finally sabotage. And if you turn to demand, you know, for a company, it makes quite a lot of sense to have management coming in, having their own money put into the business, having steep incentives, align with their shareholder. And to turn around the company with a five, three years, five years deadline and getting paid only when they exit when the cash is actually there, not based on an in a V or anything like that, it actually makes a lot of sense also on the demand side. And if a company doesn't need to turn around, if there's a need like an intervention to improve it, it's just by and hold. Well, a family office can buy and hold companies, endowments, pension funds can buy and hold companies. You don't really need a putting market even for that. So even on the demand side, private markets are quite natural. So Ludo, as you know, I have a textbook and in the textbook, we talk about what I call the fundamental trade off of corporate finance. Basically, you trade off the benefit of risk diversification against the monitoring capabilities of a shareholder who holds a large stake, but is not diversified. Are you saying that private equity markets solve this problem? Yeah, I would say that you need to rewrite your textbook. So this is true for a pantile about 2000, I would say at the turn of a century, there is the emergence of what I have called mega asset owners. You have like the Norwegians with a trillion dollar, you have Adia with one trillion dollar, you have several people with one trillion dollar to deploy. The Dutch patient fund, even APG, is close to one trillion US dollar. You have lots of very large pockets of money. And so they can hold 1000, 2000 companies directly, they could hold the entire company. An example I give sometimes is the example of Hugo Boss. Hugo Boss in the mid 2000 was not doing that well. You have a practically firm called Pamira who takes it over, turns it around, takes them a bit of time. And then Hugo Boss is now a shop that is everywhere in any shopping mall in the world. You know, you cannot really improve it in any way. And who holds Hugo Boss? Well, one family office in the Middle East. There is no reason for Hugo Boss to be held by 10,000 people. For this family office, Hugo Boss is one of 200 300 companies in the portfolio with 100 to 200 positions, your diversity fine. So yeah, I would challenge that. And on the fundamentals as well on the private craze side, you can make the same arguments. Maybe banks were there, you know, at the time when it was relevant, no, a day is there's no reason. The banks, I think you said that in an earlier podcast, the banks are not natural lenders of long term capital. And so this private craze funds. And now even directly we see patient funds making loans. They are the natural guys. The patient funds don't even want to go away. A private craze fund. APG can say I can make directly your loan to a big company. I can make a loan to a france. There's no problem. So yeah, I think that from the 21st century turn with these mega set owners with these large pockets of money, I wouldn't phrase the trade of this way. I would say there is a third route. Well, let me challenge you a bit here. Are we just moving the indirect control? In other words, instead of having lots and lots of diverse foreign investors directly investing in a company, now we have an intermediary, a private equity fund with lots and lots of investors. But then there's still the principal Azure problem between investors and the private equity managers. Aren't we back to the same problem? So I agree with you. I was being a bit cheeky for the sake of an argument. I think that if the point is are we seeing a convergence of public and private markets anyway? The answer is yes. You know, the only difference we want to describing is we don't need the continuestrating part of it. But I can very well imagine that the NYSE and other stock exchanges will increasingly facilitate the exchange or over the counter of pieces of private companies, of buildings and the like. In a discrete way, it's just they won't be so obsessed about having it every millisecond. They would say, you know, once a month, every six months, there will be one building coming up. We will cut it into 1000 pieces and we'll sell each piece of this building to institution also or whoever in term of areas. And you're right, but this principal agent problems we shouldn't be naive. They haven't been moved. They have just changed place and the principal agent problems between the LP and the GP in a practically setting are very big. I've always said that. I'm glad if more people understand that now. But for a long time, this was really put aside and not really talked much about. Well, Ludo, let me take the other side now. Investors in private equity firms spend a lot more time monitoring the managers than individual investors did. Most individual investors did monitoring firms. And a sense were going back to a time before diversification where individual investors held much fewer companies and spent more time controlling those companies. So in some sense, this new mechanism is a return to a more direct link between our shipping control. Yes. And the slack nor would be or big nor would be that they're now multiple layers of agency behind the person. So in the old days, it was this person on money. And so that roughly maybe they were acting on behalf of clients, but there was not many layers of money. Here, what we are talking about is that you would have a KKR being the direct shareholder. Then KKR has APG as an investor in it. A B P, a patient fund is actually the client of APG. And then myself is I have my patient son of it with APG. And so you have a lot of layers of people behind it. And with the monitoring that is not completed trivial. And today with the increasing retail products like the semi-liquid funds, you can have the semi-liquid vehicle behind KKR and then you have a feeder funds at the bank and then you have a client of the bank. So until you move to where the end principle is, it's quite far away. And so this monitoring gets you know, be tricky pretty quickly. And the all kinds of other incentives, principle agent frictions at every single stage, which means that you know, it's not going to be a world where you would really have a big shareholder with their own money. And they have only a few stock them up paying attention to what the company does. I would think it's a bit different. The multiple layers of agencies, I would say is okay, differential. So Ludo, one thing that fascinates me is these very long-term, slow-moving trends where we have long periods where public markets are dominant and then suddenly gradually we see the return of private equity. And I think that in the discussion just that with Jonathan, several issues already came up in terms of what the product innovation is and what the industrial organization looks like that could be drivers of this. But if you had to describe what are the major forces that are making these long-term trends happen? Why is it that suddenly private equity and actually recently private debt are so back on the agenda even though 20, 30 years ago nobody was talking about private debt really unless of course you want to call bank debt private debt, which nobody was calling that. And also private equity, I would say 50 years ago, there were not a lot of people that were even talking about private equity and everybody was involved with public equity is much more including pension plans and others. What are the major drivers of these big secular trends that we are observing? So couple of observations maybe before I go into a main argument. The first thing is that you need to be aware, your listeners need to be aware, but there is an American distortion here a little bit. Yes, private debt 80% of the money is in the US. Yes, 15% in the UK, 5% is the rest of the world, right? So when we say there are three trillion private credits, almost all of it is the US, right? A little bit of UK because it's like US this, right? The private equity is a bit more dispersed, but if you go out of Western Europe Scandinavia, UK US, it's over. There is hardly any money except for China and venture capital, which is huge. The rest is zero. Private debt also is a bit different because there has been a bit of a regulatory arbitrage, both for insurance companies that are allowed to lever up positions in private credit in a pretty aggressive way. So for them, there is a bit of an arbitrage there, a regulatory arbitrage, and the banks, because of regulations have withdrawn from the lending, but again, it's more of a UK US thing and then private credit have stepped in. But in the Netherlands, in France and so on, there is still plenty of lending like in the 1990s. On private equity, I have, you know, longer ago written about that and I've listed a number of reasons which I think are still correct, but if we have to narrow it down to one, the main reason, then I would have to refer to a paper by colleagues of Jonathan called Julian Bignot and her co-oper Ciri Verdani at Pranvod, they just wrote a piece which I think has the core argument, which is a belief that returns were higher. So I have talked a lot about it. Why this belief is actually misplaced and what might have confused people, but if we are really trying to see the core reason is we believe the returns are going to be higher, even if we look in the back mirror, our consultants are showing us evidence that it is so, some prominent academics are saying so, and then the market is a natural habitat like I just described. So that's it, we're done, you know, we need to put a lot of money in private equity. So I think that's the core reason is this belief of extraordinary returns, but there is a lot of other reasons, you know, like the CIO of Stanford and Down into where Jonathan is makes about three million dollars a year. If they replace it by me and I go passive public equity, I'm not going to get three million dollars a year, right? So complexity allows people to justify extraordinary compensation and same for consultants and so on. If you sell as a consultant passive solutions, you won't make any money. So you have an anti-cosystem that is very happy with cooked statistics because that allows them to sell this product and one thing that people are not aware enough of is that this financial product is the most expensive for financial intimidation probably ever created. The average private equity fund, LBO fund, charges about as the best we can calculate 7% a year in fee. This is orders of magnitudes to any financial products we talk about, right? When we have a debate between active and passive, we're like all you know passive is 10 basis points and the active has gone down to 100, 700, okay? Like it's out of any kind of range one maybe. Just to follow up on that, because they have two implications. The first one is we started off the conversation with existential reasons for why private markets can be important and can add value. Now there's the other side of the equation, which is the case that the people that invest in it are overcharged for it. So is your statement that there is a clear place for private markets as long as the fees are commensurate with the actual services that are being delivered? 100% or are you saying that most of private markets could or should be replaced by public markets in any case? No, so I think the former and it is important as well, just like I just made the comment on America for me and seeing this, that the high fee and a lot of issues in particular is where the main dollars are, which are large leverage by our groups usually based in the US. You have tons of people and if we go to questions about societal benefits of private equity, etc, that are called growth capital venture capital, most of private equity in the rest of the world is growth capital, there is no leverage, etc. Or hardly any. None of this is controversial. The fees are tend to be reasonable for the work done and so on. So the anomaly pocket is the large LBOs usually American based and this is where they accumulate the issues. Okay, Lula, I'm going to challenge you again. You know, my view of fees. Julie, a good explanation of why the fees are so high is exactly the question we started with that the partners and the general partners at the private equity funds are highly skilled individuals who monitor the companies and fix the companies and get those skills and very short supply and they get rewarded for that skill. So I will accept that argument the day where private equity will be very happy with disclosing all of the fees they charge to investors and to the public and the Andy Messer will say, okay, I've checked the bill and I'm cool with it. But until that happens and we're very far from that, then I will have difficulties believing that argument. Well, Lula surely they don't reveal their fees publicly, but I'm sure when the staff in Endowment is investing in these companies, they reveal very accurately the staff in Endowment and so isn't that enough? And to the mid 2010, all the fees charge on the assets directly wouldn't really be disclosed to even understand for the Endowment. And I like to think I contributed to that. I documented that a lot of fees were taken directly on the asset, which is a bit of a weird thing, right? It's like I'm controlling the company with your money and then I'm charging whatever I want from this company that I'm controlling the board off for my own consulting services, for monitoring, for my transactions. And I decide how much I'm going to pay myself and I'm your boss, so you would have to sign the expenses and everything. So I documented these things where CC went in, etc. So since mid 2000, I think the Stanford Endowment would keep track of fees on the assets, right? I hope they do it. Where there are still question marks is on fund expenses. I'm not sure everybody gets a breakdown of how much is put exactly on private jets, on traveling and so on and so forth. I'm not sure all funds expenses are really broken down. And even the Stanford Endowment is receiving this information. I doubt they are communicating the full amount again of fees and expenses paid and communicate that to their boards or that it goes beyond that. So you have a conflict of interest within also an organization like this or a patient fund where the priority could be guys know how much they are paying. They can get to the information potentially, but it's not even that easy. But even when they do is not in their interest to communicate to their trustees, to their principal, etc. Because they would freak them out. You and I both agree the data in private equities. Very hard to trust because it's all self-reported. But the way I think there is evidence is the performance of university endowments. Despite all of those university endowments have done exceptionally well and they have invested essentially a large fraction of the endowments in private equity, which tells me they privately must be returning more than they fees or the top funds are it anyway. For sure, we know the numbers, right? The average priority could be in the past. It's not clear it's going to go like this going forward. The past 20 years actually was a decade before vice about the same numbers, about 11 to a percent net of all fees for the average priority could be fun. It's even the case if you put the VCs or not in, etc. Recently Yale released their past 20 years number and it was 11.5%. All persons at 11% KCR is 11%. We know this is the number. This is pretty clear and everybody is getting about the same number. You can say this is enough and so going in the past it was all right. But I have sometimes pointed out is that going forward, if you have lower expected returns because the prices have been high since 2015 and the like and you're still charging 7% a year, I don't quite see how this is going to fly. Because if you have expected returns at 20%, which was the case actually these guys are really good. And so the average priority could be fun for the reasons we started with have generated 20% growth of his returns. These extraordinary is weren't both at strike recall for the average guy. But they have charged 7% and so it's a bit less than 20. So at 7% they are about 11 or 12. And so it was okay in an environment where the return equity has been extremely high. But in a compressed return environment, I'm very worried for when an asset class has such high returns and we see the tension right now and we think the enemy is probably a bit too high. So it's not clear. And when the returns of endowments, I don't know. I mean, they're good. They are not, you know, I think the average endowments at 7%, 8%. So little maybe you could clarify one thing a little bit for me because I'm confused about it. So when a public firm spends money on management, right, there's a certain percentage of the assets that's being spent on those management services too. It just shows up in the accounting statement. It's taken out of the firm. And assuming that it's the private equity firm delivers those management services, wouldn't it be normal that part of the assets of the firm are paid to that? And should I try to compare that to the public market equivalent of what is spent on those exact same management services or is the statement that the number for the public firm is just way lower than that 7% number that you just mentioned? So you're putting your finger on a super important point, which fundamentally for simplicity I haven't touched, but we cannot actually estimate the fees and expenses of private equity for that very reason. It's because you can say a public firm has hired McKinsey. I'm not going to count this as a fee. Imagine you're a mutual fund. You hold this company. If a company hides McKinsey, you say, it doesn't count towards a mutual fund fee. Maybe actually the guy is an activist and force you to hire McKinsey, which would be the exact equivalent of KKR saying, well, you need to hire this consultant. It's my consultant and you pay for it and then you get scounted to all my fee. So that's very fundamental and it makes the question of fees and expense extremely difficult. So when I quoted 7%, it's actually just the management fees and carried interest, but even that you could challenge that some of the management fees could be savings of consultants and the life for public companies. The big difference is that you are not allowed in a public company to have people who are sitting on your boards engaging in transactions with your company. If you are sitting on the board of company, you cannot appoint yourself as a consultant saying, this is how much I'm charging. It's arm sling. You really need this advice, right? Because the conflict of interest is obvious. So this is where the problem lies is that to which extent this is arm sling. And if I take the flip side of the story, we see some private equity firms who, for example, would have their internal law team, their internal lawyers, that they are going to charge onto the assets that they are supervising. But it's the legal team or their legal team. It's the legal team that works for fundraising and so on. They would say that fundraising is for the assets. So I'm charging all the fundraising team, all the lawyers on to the assets. And you're like, but hold on, you're getting management fees for that. Say, well, management fees for something else is for my genius monitoring. And so I'm good. And so this is where it gets very complicated. And that's why I probably have a regulator state away from that. But if you look at it from like somebody who's used to putting markets, you're like, seriously, like somebody who's controlling a company and appoint themselves can pay their own expenses. Like I can go with a private jet to visit a company and say, actually, you the CEO, I'm your boss, I'm your on your board. And then you're just going to refund me for my private jet and you're like, okay, that's weird. There's a governance situation. But this is really, really fundamentally showing it. And it means we cannot measure fees and expenses properly. We would never get to the right answer because we need a level of benchmarking and details of comparable end of underlying assets of particularly, which would be all those of magnitudes. And so that can answer to your trans question. And for the endowment would have technically to look at what you would cost to have these contracts arms length. The ones that are not arms length and its extra fees they have paid, how much is this and so on. I'm sure they don't make this calculation. They don't want to make that calculation. But that would be the right thing to do. No, and then on top of that, there is the endogenous selection of who is private and who is public. So it is theory possible. That's right. That the places where the management fees the most valuable is the place that for that reason is private. So this comes back to my question earlier too about the trends. I mean, maybe I'm perfectly on board with your argument where if everybody would indeed mistakenly believe that the returns are higher, that will drive a demand for it. That's true. But there are also supply reasons for and regulatory reasons and other market infrastructure reasons. And maybe for management reasons for why we're seeing the division of public versus private that we're seeing in practice. But in the future we may see only private markets just by and hold permanent vehicles or evergreens but rewinds and versus turnaround situations. Everything could be handled by a private market. So, one thing that I think your research has dived into a lot is the question of what benchmarks firms pick. And in the mutual fund literature, Jonathan, I've done quite a bit of work on this as well. And we essentially, if come to the conclusion that definitely the benchmark that you pick to a whole manager's accountable against matters quite a bit for the answer that you get. So for example, in mutual funds if you use Fama French benchmarks versus Vanguard benchmarks, that actually makes quite a bit of difference. I can imagine that picking correct benchmarks in private equity on the public side for many of the reasons we discussed is actually quite difficult, but I also understand from your research that it matters quite a bit what you pick for what the answer is. Is that fair? It's completely fair. In fact, people often think there is this agreement about the performance of private equity. You will hear this statement very often. There's no disagreement. Everybody agrees it's 11% average. Like, let's just clear. All of these agreements come from a benchmarking. Yeah. That complicated, but it is in the interest of people not to understand it. So I'm going to try to say and who wants. Yeah. One first thing that is important is that in the 2000s, in the US, the large cap had very low returns. So this is the so-called lost decay of the stock returns, etc. If you look at Fama French design portfolios, all nine design portfolios by size have no more returns except the larger design one. So it's really an anomaly of a magnificent 10 or whatever that they had a bad 2000. So what that meant is that people used S&P 500 as a benchmark for everything in the 2000s. If you invited anybody in your course in the 2000, whether it was for hedge funds for whatever, it was a S&P 500 as a benchmark. And so it's comparing apples and oranges, particularly investing in small and mid-cap companies. S&P 500 was a completely different type of things. And so I said that. I said to people, look, it's apples and oranges. It just happens to be a low benchmark, but like you comparing things that are not comparable. And people were very clear in the answer. They told me we are talking about senior academics. They said, well, you need to see that this an institutional investor can only invest in large cap. So the right benchmark is S&P 500 and not like this small cap, but this is outside of a scope. This is the wrong answer, but this was their answers. Then after 2008, S&P 500 does well. It does a bit better than mid-cap and small cap, not a huge lot better, but does better. And then S&P 500 disappears from the radar. Nobody uses it as a benchmark anymore because there is magnificent seven and some fair and blah, blah, blah. And so it's up. And so they replace it by MSCI world. OK. An MSCI world is low enough. Good. So now we all beat just MSCI world. And so you see the academics, you see the consultants using these benchmarks and to show what the practically does better. But it's not that hard to correct. If you compare a US private equity with a US mid cap, small cap benchmark, you're not far from one and over in terms of returns. The other thing that practically does is that they do this extraordinary thing where they take out industry sectors from a private equity space. So they say utilities, real estate, oil and gas, we're going to call these real assets. It doesn't count as an LBO. It's real assets. And you're like, how come? It just turned out to be the three sectors with worst performance over the last 20 years to use them in the benchmark portfolio, but you take them out of a priority equity one. So you have these tricks that can help you with US against US comparison. But when you do already just US, US comparison, it's hard to find that priority equity was really above. The big difference is in Europe, private equity in Europe has much better returns than European stock markets. That's not because priority equity is particularly good in Europe. They have the same returns as in the US. But the European stock market have very low returns for the last 10 and 20 years. Why is that? The biggest stocks in Europe is banks, oil and the like. And these are sectors who haven't done well, even on the US stock market. Right? And so when people say, oh, the European stock market hasn't done so well, it's just a different industry mix. And so people should just correct for industries. And we don't have quite the level of data to do that. But whenever people have done a bit of industry adjustment, even rough, you find that priority equity and public equity are doing about the same. So when you have an endowment that says, I'm looking at private equity and I'm looking at public equity, private equity did much better is because they are comparing a US tilted, tech tilted portfolio on the private equity side to something that is basically MSCI world on the public equity market, which has a lot of European stocks, has a lot of oil and gas, has a lot of banks and so on. So they are comparing our ports and oranges. And then always conclude that our oranges are much better, but it's a very weird and sad situation. So it's not super challenging to do it already to a level where you would get a much cleaner picture, but what you get at the moment, at the moment is like the amount of gaming and cooking is just beyond anything. Well, Ludo, thank you so much for coming here. I thought what you had to say was very insightful. I think many of our listeners are unaware of the details you told us about today. Yeah, I was great, Ludo. Thank you so much. Thank you. Thank you for having me. Thanks for listening to all else EcoPodcast. Please leave us a review at Apple Podcasts. We love to hear from our listeners. And be sure to catch our next episode by subscribing or following the show wherever you listen to your podcasts. For more information and episodes visit allelsequalpodcast.com or follow us on LinkedIn. The All Else Equal Podcast is a joint production of the Nordic Institute at the Universal Pennsylvania and the Graduate School of Business at Stanford University and is produced by University FM. [BLANK_AUDIO]