Episode summary
Why Most Private Equity Portfolios Are Built Wrong
How I Invest With David Weisburd
· · 25 min · Hosts: David Weisburd · Guests: Roger Vincent
Summary
Roger Vincent argues that portfolio construction is the most underrated driver of private equity returns, especially for endowments and other long-term allocators. Drawing on his years at Cornell’s endowment, he says private equity should be built as a deliberately diversified portfolio across venture, growth, and buyouts, because the right mix can raise expected return while lowering downside risk. He rejects the idea that investors must choose between concentration and diversification, saying the best portfolios use specialist managers in many niches and combine them into a broader whole.
A major theme is fee alignment. Vincent says private equity still charges expensive beta, even if the asset class can generate alpha net of fees, and that sophisticated investors use co-investments to reduce fee drag. He frames co-investing as a systematic tool, not a one-off opportunistic trade, and says the goal is to capture roughly 600 basis points of fee savings without adding portfolio risk. He also warns that direct investing works only when the allocator truly has domain expertise.
Vincent’s firm, Summation Capital, is designed to bring that endowment-style approach to a wider set of investors. He says the product charges carry only on alpha over a public benchmark, reflecting his view that allocators should not pay for market beta they could access cheaply elsewhere.
Key takeaways
- Vincent says the best private equity portfolios use diversification to raise expected return and reduce left-tail risk, not to dilute performance.
- He argues endowments should benchmark compensation to public-market alternatives because the active job is to earn alpha over liquid beta.
- Vincent says the most sophisticated investors use co-investments systematically to cut fee drag by about 600 basis points.
- He warns that direct investing usually fails unless the allocator has true domain expertise in the underlying business or sector.
- Summation Capital is built to deliver an endowment-style private equity portfolio and charge carry only on outperformance over a public benchmark.
Notable quotes
“the industry does on average generate alpha. That doesn't mean that people should be paying for the part of the returns that is not the alpha and that's the beta”
“if there's only one word that one needs to describe my style of investor or what I think is the most important word in investing, it's alignment”
How the episode opens
You spent many years at the Cornell Endowment managing $2 and half billion dollars at the time and generating some pretty spectacular results. What did that teach you about investing?
I was at the Cornell Endowment for about 12 years. I left in 2024. So uh got to invest there uh throughout an extended cycle uh through a cycle.
And what I really learned about that experience was how important portfolio construction is to investment returns. And I think it's an area that people have uh underinvested in, under spent time thinking about and there's just a lot of value that investors can get by focusing on how they construct the portfolio that their asset classes are made of.
Why is portfolio construction such an underrated thing? just taking the one asset class that I really spent my time on which is private equity uh which we think of as everything from early stage venture capital to growth equity to buyouts around the world. There's an incredible diversity of ways to generate the types of returns that are attractive to us as investors and how you put those together in a way where the whole is more than the sum of the parts is really critical.
What are some examples of some assets that play a very specific role that complement the rest of private equity portfolios?
Venture capital's a great example. Uh over long time horizons, venture capital has produced the best returns and that's at the median level. It also has produced the best opportunity for outperformance by selecting first quartile managers.
But it does this with a lot of cyclicality. And so if you make an entire portfolio out of nothing but venture capital, it may have characteristics uh in terms of highs and lows and and lack of uh cash distributions that aren't tolerable for most asset owners.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- private equity portfolio construction
- co-investments
- fee alignment
- private equity beta
- benchmarking and incentives
Companies and tickers mentioned
- Summation Capital
Watch the episode
Watch “Why Most Private Equity Portfolios Are Built Wrong” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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