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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Masters of the Universe are more like servants than you might think. Top Wall Street dealmakers and fundraising staff criss-cross America and the globe, hats in hand, spending much of their time trying to raise the billions they need to invest and, importantly, keep their jobs.
It can be unseemly work. Last week the FT reported the story of Gabrielle Rubenstein, the 30-something daughter of David Rubenstein, the billionaire co-founder of the Carlyle Group.
Rubenstein fille had a coveted seat on the board of trustees of the Alaska Permanent Fund. Concerns have been raised about governance and her referral of certain external asset managers to Alaska fund staff, although she has denied any impropriety. The APF, with roughly $80bn in assets, is a rare sovereign wealth fund in America. It derives its cash from natural resource levies. APF’s investment returns help fund state expenditures and even pay dividends to state residents.
According to APF’s disclosures, its returns have been good. In the last decade the fund has returned 8.4 per cent annually, ahead of the three distinct benchmarks it measures against. APF’s current allocations set aside just over 50 per cent to public stocks and the rest to alternative assets, including private equity, private debt, real estate and hedge funds.
The skill asymmetry between municipal bureaucrats who control purse strings and the private equity titans eager to get their share of public money has always been a worry. Over a decade ago, pension fund Calpers was shaken by a scandal that raised questions about the role of placement agents collecting fees from private equity investors and others keen to manage public assets.
According to Bain & Co, global private capital raised in 2023 was off by nearly a third from its 2021 peak of $1.7tn. Bain noted that even those numbers belie underlying shifts where a few mega funds now tend to dominate allocations.
The younger Rubenstein, who once founded her own investment firm, made around 20 referrals to asset managers but her spokesman insisted she played no role in investment decisions and followed protocols. APF, given its size, should not have difficulty getting in front of any managers that it covets. Its results indicate that its overseers are doing an effective job of generating excess returns.
Institutions have made the decision that they must be in high-fee private assets, instead of low-cost public securities, for diversification purposes. That choice has introduced significant monitoring and principal/agent challenges. But the capital allocators should recognise that they are always the ones in charge.
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