Episode summary
Ex-Investment Banker: What Private Equity Doesn't Tell You
The Rational Reminder Podcast
· · 1 hr 27 min · Hosts: Benjamin Felix · Guests: Jeff Hooke
Summary
Jeff Hooke argues that private equity, private credit, and related alternatives are mostly sold on hype, career incentives, and difficult-to-verify performance claims rather than durable skill. He says institutional allocators often copy marquee pools like CalPERS and Harvard because doing so provides cover for staff and consultants, even when simple 60/40 indexing has done better. In his telling, the appeal is as much psychological as financial: alternatives look sophisticated, create more talking points, and justify higher fees.
He says the core measurement problem is that private funds rely heavily on unrealized values, selective reporting, and IRR-based marketing that can flatter results. Hooke points to public market equivalent methods as a cleaner benchmark and argues that once fees, unsold assets, and survivorship bias are considered, many private equity and private credit funds lag public comparables. He also says the industry’s data are incomplete because many funds do not report to databases like PitchBook/Frequent, making outside scrutiny hard and giving managers room to shape the narrative.
On private credit, Hooke says the product is mostly leveraged-loan exposure in disguise and that a recent study he coauthored found no evidence that seasoned North American private credit funds beat a public ETF of floating-rate junk bonds. He thinks retail investors are likely to fare worse because they will face another layer of fees and may be especially vulnerable to marketing around “exotic” returns and lower reported volatility.
Key takeaways
- Jeff Hooke says institutions often allocate to alternatives for career preservation and social signaling, not because the assets reliably beat a 60/40 index.
- Hooke argues that private equity’s reported returns are flattered by unrealized marks, IRR conventions, and survivorship bias, while public market equivalent benchmarks are more informative.
- He says roughly 90% of state funds in one of his studies underperformed a simple index, and CalPERS lagged a Vanguard 60/40 fund by about 1.2% a year over 10 years.
- Hooke says his private credit study found no evidence that seasoned North American private credit funds beat a public ETF of floating-rate junk bonds.
- He warns retail investors will likely face higher total fees and little transparency if private equity and private credit are pushed into retail portfolios.
Notable quotes
“they use their subjective analysis of values to make themselves look more smooth as opposed the market going up and down”
“if you look at the largest blended Vanguard fund, which is what you guys invest in, index funds, it's a 6040 index fund”
How the episode opens
This is the Rational Reminder podcast, a weekly reality check on sensible investing and financial decision-making from two Canadians. We're hosted by me, Benjamin Felix, chief investment officer, and Dan Bordili, portfolio manager at PWL Capital. — Good to be back with another guest.
Yeah. Episode 409. And today we are joined by Jeff Hook who is a former investment banking private debt and private equity executive in both New York and Washington DC.
Uh he's been a senior lecturer at John's Hopkins University and he's also written five books and a bunch of academic papers. Uh his academic papers are largely on the topics that we talk about today which is private markets, private equity and private debt. He's also got a book, his latest book, uh I believe it's a 2021 book, The Myth of Private Equity.
So, you can start to get a feel for the direction we're taking this conversation. uh and his his latest published academic paper talks about uh the performance shortfalls in private credit which is something that I I think was a very important paper because private credit has been being pushed to the industry and and more recently to retail investors very very hard based on its superior performance and a particular superior risk adjusted returns. But in Jeff's research on this, uh, he he finds something quite different.
Uh, it's also interesting, and this was discussed in the rational reminder community, which is why I bring it up. His paper did have a rebuttal from Cliff Water, which is one of the large private credit managers. Uh, and and our our friend Larry Swedro uh referenced that rebuttal when we were talking about Jeff's paper.
Um, and so Jeff has some comments about their about their comments, I guess, and about their their critique in general.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- private equity performance
- private credit benchmarks
- private market valuations
- fee structures in private funds
- survivorship bias
Companies and tickers mentioned
- PWL Capital
- Cliffwater
Watch the episode
Watch “Ex-Investment Banker: What Private Equity Doesn't Tell You” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
More from The Rational Reminder Podcast
-
Wealthy People Are Hiding in Plain Sight (ft. Owen Zidar) | Rational Reminder 428 -
What to Know Before (and After) You Hire an Advisor (with Matthew Taylor) | Rational Reminder 427 -
The Finances of Marriage | Rational Reminder 426 -
The Ethics Problem in Financial Services (Dr. Moira Somers & Philippa Hann) | Rational Reminder 425 -
50 Years of Evidence-Based Investing (with David Booth) | Rational Reminder 424 -
The Future of AI in the Workplace | Special Episode (Mike Sullivan and Vinay Gidwaney)
The Rational Reminder Podcast, this episode and its artwork belong to Benjamin Felix, Cameron Passmore, and Dan Bortolotti. Octagon is not affiliated with the show; this page is an independent summary.
