The Meb Faber Show
Liquid Private Equity & Volatility Laundering (Owen Lamont & Randy Cohen) | #625
Why It Matters
Understanding liquid private equity is crucial as it promises private‑equity‑like returns with the liquidity needed for most investors, bridging a gap that has limited access to this asset class. As markets grapple with transparency and volatility‑smoothing concerns, the episode offers timely insights into how quant‑driven, publicly tradable vehicles could democratize high‑performance investing.
Key Takeaways
- •Private equity outperforms public markets by 2‑4% annually
- •Reported PE volatility appears lower due to smoothing practices
- •Liquid private equity mimics LBO factors for public investors
- •Institutional interest growing, but investors demand proof before large commitments
- •Student incubator FieldX launches startups like Veho and Halo Braid
Pulse Analysis
The conversation opens with a clear picture of private‑equity returns: over the past few decades PE funds have delivered roughly two to four percent annual excess returns versus public equities, while advertising volatility that looks markedly lower than the market. Randy Cohen points out that this apparent stability often stems from “volatility smoothing,” where valuations are adjusted to hide the true swing, especially evident during the COVID‑19 crash when public indices fell 20 % but many PE portfolios reported only a 10 % decline. Critics label the practice “volatility laundering,” arguing it obscures real risk for investors.
Both guests then explore a “liquid private‑equity” model that translates the core levers of a leveraged‑buyout into a tradable public vehicle. By targeting high‑profit, low‑multiple, low‑risk, small‑cap companies—exactly the five factors that drive outperformance in Fama‑French models—and adding modest debt (30‑50 % versus the typical 60 % in LBOs), a liquid fund can capture private‑equity‑style returns while offering daily pricing, tax efficiency, and liquidity. This approach promises to open the PE premium to the half of capital markets that cannot lock up capital for years.
From an institutional perspective, enthusiasm is tempered by caution. Randy notes that after hundreds of meetings, investors show interest but often wait for a pioneer to “go first” before committing sizable checks. Early adopters, such as a Canadian bank, have begun allocating capital, yet the broader market still seeks transparent performance data. The episode also highlights innovative entrepreneurship through Harvard’s FieldX incubator, where student teams like Veho (package‑delivery platform) and Halo Braid (automated hair‑braiding machine) illustrate how fresh ideas can feed the pipeline of future private‑equity targets.
Episode Description
Today’s guests are Owen Lamont, a Portfolio Manager at Acadian Asset Management, and Randy Cohen, a finance and entrepreneurship professor at Harvard Business School and co-founder of PEO Partners, which is a leader in the emerging liquid Private Equity alternatives space.
In today’s episode, Owen Lamont and Randy Cohen begin with a deep dive into private equity, how to model it in public markets, and why investors are searching for liquid ways to access private-market-like returns. They challenge common views on concentration, market valuations, and explain how investors should think about bubbles and technological change. They also discuss whether the US stock market is Koreafying and the long-term forces that could shape the investing landscape.
(0:00) Starts
(0:34) Welcome Owen and Randy
(5:14) Private equity overview
(9:20) Liquid private equity
(20:05) The US stock market is Koreafying
(24:29) The IPO landscape
(36:03) CAPE Ratio and AI
(44:45) Best ideas investing
(58:44) Deglobalization increases the benefits of diversification
(1:00:36) Randy's five future fears
(1:11:09) Book recommendations
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Past guests include Ed Thorp, Richard Thaler, Jeremy Grantham, Joel Greenblatt, Campbell Harvey, Ivy Zelman, Kathryn Kaminski, Jason Calacanis, Whitney Baker, Aswath Damodaran, Howard Marks, Tom Barton, and many more.
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Editing and post-production work for this episode was provided by The Podcast Consultant (https://thepodcastconsultant.com).
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