Volatility Laundering in PE
Recently read a Volatility Laundering article written by AQR. Was wondering if this actually happen in most of the PE funds. ie. hard to believe BX REITs posted positive returns last year as apposed to the general market drawdown
There are tech/consumer stocks that go up down 30% on earnings. Tell me any PE owned company that can do that - makes no sense.
This article is worth a read: https://www.ft.com/content/d20a750b-9544-4927-88a4-72050c658967
The short answer is yes - any associate that has been through a quarterly valuation process can attest to it. It hasn't been an issue historically given PE has continued to deliver strong realized returns as that's what LPs ultimately care about. It only gets to be an issue when you have underperforming funds propping up valuations for fundraising purposes and/or to justify their own existence.
That being said, we're coming off of a 10+ year bull run with near-zero interest rates and the industry is rapidly maturing. Fundraising is tight right now and the party might be starting to finally slow down so this could become a bigger sticking point going forward.
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