#the lim life and last life ones are pins and the secret life one is a magnet

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little life series accessories :)

[suchagiantnerd]

28 Books, 1 Year

Well, 2020, amirite? Staying home with a 4-year-old and a baby really decreased my reading time, bringing me to my lowest total ever since starting this blog. Here we go!

1. Her Body and Other Parties / Carmen Maria Machado

I rarely feel stupid when reading fiction, but this collection of short stories left me feeling pretty stupid. Machado's writing is visceral and gorgeous but what she's trying to say is mostly beyond me. Overall, the collection (as evident by the title) looks at the ways existing in a woman's body is fraught. Sometimes we want to escape our bodies, often our bodies are harmed or taken advantage of against our will, sometimes our bodies fail us. But as for the more nitty-gritty takeaways, I couldn't get there. One story in particular is staying with me. In it, Machado invents new summaries of each and every episode of Law & Order: SVU, telling a tale of a living, breathing New York City that requires regular blood sacrifices and in which everyone has a doppelgänger. I liked it, but definitely didn't get it.

2. Moon of the Crusted Snow / Waubgeshig Rice

This wonderfully chilling read takes place on a remote reserve in Northern Ontario. Over the course of a few days, cell service stops, the internet goes down, and the power goes out. With no communication possible with other communities, the reserve's residents can only guess at what may be occurring down south. As autumn creeps toward winter, the snow piles up and panic sets in. Eventually, a visitor arrives via snowmobile and confirms the residents' worst fears about the state of civilization while also asking to stay on in the community. Can he be trusted? Will others follow? This was a tense page-turner looking at the importance of community, preparedness and leadership.

3. Tiny Beautiful Things: Advice on Love and Life from Dear Sugar / Cheryl Strayed

Dear Sugar's advice to a person who didn't know whether or not he wanted kids is what turned me onto her. The answer was perfect. For someone on the fence, there is no right answer, no wrong answer. But there was a simple beauty to the way she said this. In this advice column collection, Sugar answers questions about love, parenthood, friendship, loss, death, finances, education, hopes and dreams. She insists again and again that we open our hearts and give forgiveness a chance while still maintaining healthy boundaries. And through her answers (and anecdotes) she showers love and care on so many devastated readers who are often writing to her as a last resort.

4. Girlfriend in a Coma / Douglas Coupland

We start the action with a Breakfast Club-type group of teens at a party in 1979 Vancouver. One of them, Karen, ends the night in a coma and doesn’t wake up for 16 YEARS. Also, turns out she was pregnant, and gives birth while in the coma. Richard, her boyfriend, raises their daughter with the help of his parents and friends, and by the time Karen wakes up again, the world has gone downhill. Not long after she wakes up, everyone starts falling asleep and dying except for the original group of friends and Karen’s daughter. I liked this novel as I’m a sucker for everything dystopian, but I also had to ask WHY? Why this random group of teens out of all the world? Why did Karen have to be in a coma for so long? How does it tie into the apocalypse? I still don’t know guys. I still don’t know.

5. How to Change Your Mind: What the New Science of Psychedelics Teaches Us About Consciousness, Dying, Addiction, Depression, and Transcendence / Michael Pollan

Back in the 1960s, research on LSD was banned thanks to a moral panic. But today, scientists and therapists are starting to study its uses again. Pollan takes a deep dive into the future of LSD, psilocybin (certain mushrooms, and if I remember correctly, a substance that a certain toad secretes?!) and DMT, taking various trips himself with the help of trained guides. His vivid descriptions of each trip were the highlight of the book, and I find myself, someone who has never tried anything other than pot, wanting to try microdosing in the future.

6. Eleanor Oliphant is Completely Fine / Gail Honeyman

The first of two contrarian reviews this year, I really didn’t like this book. I found Eleanor’s character and quirks completely unbelievable, and even discovered a little hole in the plot demonstrating that she can’t be as out of touch with pop culture as Honeyman claims she is (which I can’t reveal to you because it’s also a spoiler). I think my issue is that as far as I know, the author is not neurodivergent, whereas Eleanor is. I think this does a real disservice to readers, and would much prefer to read something like this by a neurodivergent author.

7. The Story of the Lost Child / Elena Ferrante

I finally finished the Neapolitan Quartet series! The fourth and final book finds Elena and Lila in their thirties and follows them until they’re in their sixties as they navigate professional successes and failures, new aspects of motherhood, relationship woes, and a fraying friendship. The dynamics of the friendship at the core of this series speak to me so deeply and captures so much about the passion, tension, tenderness, and competition that lurk within a longtime platonic relationship.

8. The Seven Deaths of Evelyn Hardcastle / Stuart Turton

Dare I describe this as Downton Abbey meets Black Mirror? Aidan Bishop wakes up on the same date and in the same setting every day (Blackheath Manor on Evelyn Hardcastle’s birthday) but as a different guest or employee each time. Each night, Evelyn Hardcastle is murdered. Aidan quickly learns that his task is to find the murderer, using the different skillsets and vantage points he inherits with each subsequent body. The tension! The twists! The gorgeous setting! I loved this winding, wild novel.

9. You Were Born for This: Astrology for Radical Self-Acceptance / Chani Nicholas

If you are an astrology lover and don’t know who Chani Nicholas is, you’ve been living under a rock! Follow this woman! Her practice and guidance is so inclusive - feminist, anti-racist, anti-transphobic, body positive, and all about how to discover and lean into your gifts and talents while keeping in mind the greater good and working toward a more progressive society.

10. An Ocean of Minutes / Thea Lim

I started reading this dystopian novel about a pandemic right at the start of the pandemic! Maybe not a wise decision, but it didn’t matter, because this book is a beautiful, moving read. In the near future, young couple Polly and Frank find themselves stranded in Galveston, Texas, when a deadly virus begins sweeping across the globe. Frank gets sick, and the only way that Polly can pay for his expensive life-saving treatment is if she signs up as a bonded laborer and travels to the future (yes, time-travel exists!) The couple agree to meet up in 12 years (which will really be just a few short days for Polly). However, Polly is send an extra five years into the future, and Frank is nowhere to be found. The worry I felt! Polly’s loneliness and confusion in the future! Will they find each other again? Oh boy, this was an emotional ride!

11. Where the Crawdads Sing / Delia Owens

The second of my two contrarian reviews this year, I also really disliked this book, which everyone else and their mother seemed to adore? It was bad! The plot felt really contrived, the characters were two-dimensional, and I felt icky about the author’s two Black characters and how the protagonist, Kya, interacted with them. I don’t think Delia is informed enough about the realities of the Black experience, then and now, to responsibly write Black characters. Also, the ‘twist ending’ was a snooze fest. The one redeeming factor was the author’s palpable love of and knowledge about nature. I really did enjoy reading about the coastal habitat and sea life that the Kya loved so much. Oh, what’s this novel about, you ask? It’s a combo coming-of-age / murder mystery set in the 1950s and 60s.

12. The Skin We’re In: A Year of Black Resistance and Power / Desmond Cole

Cole is a Canadian journalist and activist shining a much needed light on racism in this country. In this book, he highlights one incidence of systemic racism in action per month during the year of 2017, focussing on police brutality, harm caused by school boards and educators, the Canada 150 celebrations, and unjust immigration policies. This book packs a punch and Cole’s writing style is really accessible. It’s a great entry point into learning about the realities of racism in Canada.

13. Emergent Strategy: Shaping Change, Changing Worlds / Adrienne Maree Brown

I absolutely loved this book, though I find it hard to pin down. At its core, it encourages us to think more deeply and holistically about nature, social justice, and community. Brown is heavily influenced by Black sci-fi / dystopian master Octavia Butler, specifically Butler’s ideas around “shaping change” while living through change. It’s full of gems of wisdom, like this quote, which is one of my favourites: “Imagination is one of the spoils of colonization, which in many ways is claiming who gets to imagine the future for a given geography.” As Brown also writes about, and which we can really see in this moment, we are currently living through the tail-end of a dying society, imagined by a small few. What could we create together if everyone’s imaginings carried equal weight?

14. From the Ashes: My Story of Being Métis, Homeless, and Finding My Way / Jesse Thistle

Thistle’s emotional and turbulent memoir begins with a loving memory of his time as a little boy at his maternal grandparents’ home. Not long after, his parents moved the family away from their Métis community and Jesse and his two brothers soon end up in the foster care system. This experience, though relatively brief, absolutely traumatized all three of them. Later, they end up living with their paternal grandparents, who love them deeply but are extremely strict, which doesn’t work for Thistle. He hits various rock bottoms, battling with addiction, trauma and homelessness at the intersection of racism. And somehow, he manages to break free of these harmful cycles, go back to school, and become an academic and best-selling author.

15. Policing Black Lives: State Violence in Canada from Slavery to the Present / Robyn Maynard

I would call this a must-read for Canadians. Maynard breaks down exactly how Canada surveils and punishes Blackness despite its claims of inclusivity and tolerance. She explores policing, yes, but also social work, education, immigration, and education and it’s impossible not to see the levers of systemic racism at work everywhere. Fair warning though, this is a more academic text and requires real concentration.

16. Jhumpa Lahiri / Unaccustomed Earth

This collection of short stories (the last being more of a novella) was gripping. I somehow fell in love with almost all of the characters. Lahiri writes people so skillfully. I felt their longing, hope, sorrow, grief, excitement. Most of the tales take place within the Indian community in Cambridge, Massachusetts, but some stories take us further afield. Lahiri picks a key relationship to focus on within each story - daughter/father, sister/brother, two roommates, childhood acquaintances - and lays them out gently under her microscope for us to see in all their intricate complexity.

17. Midnight Sun / Stephenie Meyer

Did you guys know I’m a Twihard? Having read all the Twilight novels (multiple times) way before I started this blog, this may be new information. But I’m a huge, pathetic fan and though I love Jacob, I will always be Team Edward. So OF COURSE I had to read this extremely long-awaited book, which is actually Twilight, but from Edward’s point of view rather than Bella’s. It was genuinely enjoyable, but not filled with nearly enough sexual tension for my liking. And of course, never ever read it unless you are also a Twilight fan.

18. The Sun and Her Flowers / Rupi Kaur

It’s Rupi being Rupi! I legitimately enjoy Rupi’s poetry, but I don’t love it. Some of the pieces really resonate, and others do nothing for me. But I do think she’s an important voice for young women, and specifically young women of colour. So much of her writing is about reclaiming your power, honouring the older generation of women who sacrificed so much and received nothing in return, and learning to love yourself in a society that is constantly trying to hurt you. Her poetry is always an uplifting read.

19. Conscious Creativity: Look, Connect, Create / Philippa Stanton

I’ve been following Philippa on Instagram for years as I adore her flat-lays and domestic foraging arrangements (if you follow me on IG, you may have seen my colour-themed #DomesticForaging homages to her work!) So when she published a book outlining her own creative process (and containing tons of her gorgeous photography), I had to read it. Stanton has included lots of activities meant to light your creative spark and inspire new ways of looking at things. She also writes about her experiences as a synesthete (someone who may “see” music as colours or who may “hear” shapes), which was fascinating. This is a book I’ll certainly go back to when I’m feeling uninspired. Want to follow her on IG? Her handle is @5tfinf.

20. Turkey Trot Murder / Leslie Meier

Guys, this review is the start of something BIG. Brad knows that I love to read books that are “in season” (I don’t want to read a book set in the summer during the winter, etc.). So he bought me this very niche Thanksgiving mystery novel to read in October. It’s alllll fluff, and very much in the “so bad it’s good” category. It also turns out that Leslie Meier may be one of the most prolific authors of all time, and so Brad signed me up to her “book of the month” fan club for my birthday this year, meaning I get a new, seasonally appropriate Meier classic each month. (You should also know that the “book of the month” fan club is entirely made up, and the letters from Leslie are actually written by Brad, and yes, he has designed a logo for the letterhead.)

21. Haunted House Murder / Leslie Meier and Lee Hollis and Barbara Ross

Wait, what? THREE authors? Yes, some of the Leslie Meier classics are actually novellas, so they are combined with novellas by two other authors into these seasonal collections. Also, Lee Hollis isn’t even real. Lee Hollis is in fact TWO PEOPLE, a brother/sister writing duo! So there are four authors involved in this spooky little collection. They all take place in small-town Maine, so yes, the settings are adorable and the plots are terrible.

22. Autumn / Karl Ove Knausgaard

I think I would describe this memoir (?) as a collection of magical noticings. While his wife is pregnant with their fourth baby, Knausgaard starts writing letters to the unborn child, telling them about, well, everything and anything. That project turned into this book, in which the writer observes everyday things like hands, toilets, fog, petrol, and snakes, and finds the beauty and wonder in all of them. Reading this book left me feeling very inspired and wanting to try and develop this skill in myself as I write.

23. The Feather Thief: Beauty, Obsession, and the Natural History Heist of the Century / Kirk Wallace Johnson

Back in 2009, Edwin Rist stole HUNDREDS of dead birds from the British Museum of Natural History. That fact alone is mind-boggling (how?), but it gets wilder. He didn’t steal them for nerdy science reasons, he stole them to sell to the Victorian fly-tying community. Yes, flies as in the things you attach to fish hooks. And no, not flies that will actually be used, but flies that are constructed as a hobby and art form. Wallace Johnson does a great job of conveying Rist’s obsessive passion for fly-tying and the desperation many fly-tiers feel as they try to track down increasingly rare and protected feathers from exotic (or extinct) birds. The author also has a journalist’s nose for sniffing out lies and half-truths and even tracks down Rist himself for a sit-down interview. I was riveted throughout the whole book, which lives at the intersection of history, science, mystery, and psychological deep-dive.

24. Yule Log Murder / Leslie Meier and Lee Hollis and Barbara Ross

The seasonal fluff dream team is back! And yes, a yule log features prominently in each novella. Once as a murder weapon, and once as a suspected murder weapon! These books also feature real recipes, some of which actually look pretty tasty!

25. Empire of Wild / Cherie Dimaline

This was a chilling page-turner and the second novel of Dimaline’s that I’ve read and devoured. She’s quickly become one of my favourite authors. In this story, Joan, a Métis woman living in the Georgian Bay area, is at the tail-end of the worst year of her life. Almost a year ago, her husband Victor disappeared into thin air after a rare argument between the couple, and Joan’s been searching for him ever since. One day, she wanders past a Christian revival tent in a Walmart parking lot, and the minister is the spitting image of Victor. She manages to have a brief conversation with him and it appears he has no memory of her or his prior life. Yet, in her gut, she KNOWS it’s him and resolves to return him to himself (and to her). This slow-burning horror novel weaves in the Métis myth of the Rogarou, a werewolf-ish creature who walks lonely roads looking for victims, to great effect.

26. Eggnog Murder / Leslie Meier and Lee Hollis and Barbara Ross

Another seasonal romp in which this time, the eggnog is the murder weapon in TWO of the stories! TWO PEOPLE IN TWO SEPARATE STORIES DIE FROM DRINKING NUT MILK EGGNOG AND NOT KNOWING IT WAS NUT MILK AND SUFFERING FROM A NUT ALLERGY. Anyways, I actually made one of the included recipes this time - eggnog muffins - and they were truly delicious!

27. Watch Over Me / Nina LaCour

This is a beautiful and haunting (both literally and figuratively) YA novel about the way trauma from our past follows us around, haunting our present. Mila, who’s just aged out of the foster care system, lands what seems to be a perfect job helping to teach younger children at a farm in Northern California. The farm is owned by an older couple who’ve become somewhat famous for taking in dozens of kids from the foster system over the years. Upon arrival, Mila falls in love, but soon starts to notice strange things about the way things are done on the farm, while also suffering from PTSD related to her own childhood traumas. Is there something sinister going on, or could this beautiful, isolated place become the home Mila’s always longed for?

28. Phases / h.duxbury

I started writing poetry again this summer, and quickly found lots of other poets sharing their work on Instagram. @hduxburypoetry (a fellow Ontarian, too!) quickly became one of my favourite accounts to follow, so when i learned that she self-published a poetry collection, I had to grab a copy. Her work is heavily inspired by nature and the changing seasons, which I’m a sucker for, so I really enjoyed it. Her poems also delve into grief, loneliness, love, and growth.

Well, there you have it! As for my 2020 faves, my top three reads were:

Empire of Wild

Unaccustomed Earth

Emergent Strategy

[lisaskate4]

Wall Street Journal Story Confirms That CalPERS Plans to Overpay Grossly in Its New Private Equity Scheme

We had hoped to leave CalPERS alone for a bit, but a new Wall Street Journal story confirms a post we published earlier this month. We discussed how the fees for its private equity scheme that CalPERS presented to the board as if it were a great deal are in fact so high as to amount to a roughly $80 million payday, per new fund, per year, for the fund owner(s).

It was alarming to see the architect of the private equity plan, John Cole, so badly mislead the CalPERS board. It says he is either utterly clueless or complicit in a plan to loot CalPERS.

Recall that the centerpiece of CalPERS’ plan is to set up two new fund management efforts, one of which would operate a “late stage venture capital” fund, the other which would run a “Warren Buffett style fund”. Buffett, if he had deigned to take notice, would vehemently disagree with the claim. This industry fad for marketing funds with longer holding periods bears virtually no resemblance to how Buffett invests. As his just-released annual shareholders’ letter makes clear, Buffett looks at taking 5-10% stakes in public companies along side evaluating acquisitions of entire companies. Buffett is also willing to sit pat if there are no investments at what he regards as good prices (and his black eye with Kraft shows he can get it wrong). He hasn’t bought a big company in the last few years and warned he might not this year either.

Most important, Buffett is allergic to paying fees:

Yet CalPERS being so willing to continue to overpay to invest in private equity, and on top of that, even when it admits that the “Warren Buffett strategy” fund will underperform conventional private equity funds. This makes no sense, yet staff keeps prattling on to the captured board that this sort of destruction of value is necessary and desirable.

The Journal’s story, BlackRock’s $12 Billion Bid to Become a Private-Equity Giant Is Behind Schedule, recounts how the giant fund manager has pinned its efforts on launching a mega “Warren Buffet style” fund as its apparent first major offering. Attentive readers will recall that BlackRock had been courting CalPERS hard. Bloomberg broke a story in September 2017 that CalPERS was in secret discussions with BlackRock about outsourcing their entire private equity program to BlackRock. Caught out, CalPERS tried putting lipstick on that pig via a sham beauty contest designed to favor BlackRock. The plan then was for CalPERS to put a big chuck of its monies in a private equity funds of fund program. That idea was indefensible by virtue of having CalPERS pay an unnecessary layer of fees, which as Buffett underscored above, takes a big bite out of returns over long periods of time. That plan fizzled out. CalPERS management quietly abandoned it; the scuttlebutt is that BlackRock sought fees so much higher than those of the other bidders as to make it impossible to go forward (raising the obvious question of why CalPERS didn’t proceed with one of the others on its overly short solicitation list if this was actually a good idea, as CalPERS staff had maintained to its board).

The Journal story by Dawn Lim is germane to CalPERS not just for showing how ludicrously rich the fees are for the deals CalPERS wants to strike for its new fund, but separately how other major investors are balking at the idea of committing large amounts to an untested private equity fund manager.

Bear in mind that new private equity funds housed in BlackRock would pose far less startup risk than the ones that CalPERS is trying to set up. BlackRock is providing lots of managerial support: accounting, compliance, office space rental, equipment purchasing, and so on. That means the professionals aren’t burdened down with administrativa that would distract the leaders of the CalPERS funds.

But even with the BlackRock imprimatur, the dogs don’t want to eat the dog food:

BlackRock Inc. in 2018 set a goal of raising at least $12 billion to buy and hold long-term stakes in companies, replicating the approach of Warren Buffett. The world’s biggest money manager is still waiting for its first check…

But an experiment with private equity is proving to be a tough sell for some investors. A major Chinese sovereign-wealth fund and the state investor for Alaska’s oil wealth passed on a new BlackRock fund known as Long Term Private Capital, according to people close to those organizations. Florida’s largest public pension fund and Minnesota State Board of Investment are in talks with BlackRock, but no deal is done, said people close to those institutions.

BlackRock officials now hope to secure initial funding later this quarter after missing internal deadlines in 2018. The architect of Long Term Private Capital said the launch has taken longer than expected partly because of the fund’s unusual approach. Its fees are cheaper than many in the industry, but it doesn’t have a deadline for returning money to investors.

Help me. Some big brand name private equity funds managers, such as KKR and Carlyle, have been able to cash in on the “Warren Buffett style” fad. But they didn’t refuse to give an expected fund horizon as BlackRock has, nor did they seek to raise such a presumptuously large amount of money. From the Financial Post in 2017:

A few years ago, private equity managers were growing tired of sitting on the sidelines, watching Warren Buffett’s Berkshire Hathaway make landmark investments in Kraft Heinz and BNSF Railway. They wanted to get in the game.

Stop here. The invocation of Kraft should serve as a big red flag. Back to the story:

So a few of the biggest names in the industry, Carlyle Group, Blackstone Group, and KKR, set about building their long-­duration private equity businesses, hiring teams and raising multibillion-­dollar funds (or forming long-life partnerships) to buy companies that are projected to perform well over a longer time frame than the short hold period of a standard buyout fund.

Let’s stop again. The difference between the target holding period for these newbie funds (the article cites ten years as a typical expectation) is actually not that much longer than that of a “standard buyout fund”. While the period of ownership once averaged four to five years, post-crisis, the norm is now six years. Back to the article:

In 2016, Carlyle raised $3.6 billion for its long-dated Carlyle Global Partners fund…Carlyle has so far struck six deals for the long-duration fund…

Blackstone Group LP has raised $4.8 billion to date for its long-term fund….

European firm CVC Capital Partners closed a $4.4 billion pool for a long-term strategy, with backing from the firm’s part owner, the Government of Singapore Investment Corp.

KKR & Co., whose co-founder Henry Kravis in 2009 described Berkshire Hathaway Inc.’s style as “the perfect private equity model,” is also dabbling….

The field is largely limited to these big players, the industry’s precious few household names with a track record and bench of players deep enough for investors to trust them with their cash for two decades. “I think it will be a very limited number of people who can raise a fund of this duration,” says Jim Treanor, head of North America advisory services for Pavilion Alternatives Group LLC.

Aside from the risks of being locked to a manager long-term, being held by a private equity firm for an extended period could also affect the portfolio company’s performance and investor returns, according to Treanor. “It’s hard for one GP to be able to continually add value at every stage of that development of the company,” he says. “It’s going to be the bigger GPs that have bigger networks and a variety of value-add” tools…..

And at a time when many investors like U.S. public pension systems are struggling to meet their expected rates of return, accepting lower returns — even in return for long duration and lower fees — isn’t appealing for everyone, he says.

Notice what is supposedly takes to succeed at this sort of investing (not that anyone has been at it long enough to be deemed a success): a big firms’ wide-ranging network and their extensive skills. There is no way that the small team that CalPERS plans to set up will have that.

And investors aren’t persuaded that even a mega-firm like BlackRock has the chops. The fact that it has been flogging this fund for so long and has not a single bite is damning. The target for fundraising for 2018 was $4 billion, and let us not forget that this is a white hot market for private equity. Nevertheless, BlackRock CEO Larry Fink says he’s not deterred and doesn’t see “the speed of a first close” as critical.

Notice that the Financial Post story pointed out that lower funds are a standard inducement for this strategy. It’s a sop to investors to compensate for the lower expected returns. But it still works for the fund professionals. By doing deals much less often and by begin spared raising funds every four or ive years, these long-term funds can operate with far fewer professionals than a similar-sized conventional fund. The Journal report seemed unaware of this design factor, and treated BlackRock’s fees as a special inducement, as opposed to a norm for this approach. From the story:

Long Term Private Capital is offering to charge clients a management fee below 1%, and 10% of profits, and its management fees would fall as the fund gets bigger. Private-equity funds across the industry charge clients a 2% management fee and 20% of profits, according to median figures from Preqin.

Lim is doing readers a huge disservice with this comparison. There are many very small private equity funds. The median size is on the order of $300 million, and for a fund of that size, a 2% management fee is reasonable because it corresponds well to how much it costs to run the business. But if you were to dollar weight the average, it’s way higher, and the corresponding typical fee levels would be lower. And that’s before you factor in that mid-sized to mega funds offer tiered pricing, with larger commitments getting lower fees.

With this long-winded introduction, let’s return to a February 5 post and see how the Journal has validated it:

Cole slipped his announcement about the crazy-high costs past the board using a tried-and-true tactic of investment managers when they are trying to obfuscate the fees, that of using percentages rather than mentioning any dollar amounts. Here is Cole’s response to a question from Steve Juarez, who was acting as the representative to Treasurer John Chiang. From the December transcript:

Investment Director John Cole: What that leads to is that in an early environment, or an early term of setting up the entity, when assets are relatively small, let’s say a billion or $2 billion, relatively small in CalPERS sense, that the percentage of that amount will be high. And that as that matures over the course of a few years, then it — that and that becomes a much lower percentage. So that by the time we get to, say, $5 billion, that the equivalent of that percentage to the 2 and 20 world is pretty close.

By the time you get to $10 billion, it’s about half — half of what we would be paying otherwise. And all of that is going to be subject to exactly how the calculation

Recall that the management fee is the biggest fee that private equity fund managers receive and that they get it regardless of how the fund does. It is prototypically described as 2% of the amount committed, but in reality, the level is much lower on large commitments, and the $5 billion per fund here is off the charts in terms of size.

Cole says that the applicable percentage varies with the size of the asset base but is 2% when the asset base is $5 billion dollars. Note that two percent of five billion dollars is $100 million, so Cole is saying that the management fee at that point will be $100 million. He then goes on to say that the management fee is roughly half the 2% at $10 billion dollars, which would be 1%. Again, 1% of $10 billion is $100 million. Note how Cole emphasizes the reduction in fee percentage as if these are actual cost savings, when the reality is that the formula will cause the total dollars paid by CalPERS to remain flat. And recall that Cole notes in passing that the percentage will be higher before the $5 billion level is reached, so the management fee in dollar terms may well be near or at $100 million from very early on.

The excessiveness of a two percent management fee on a single investor committing $5 billion dollars is obvious from the fact that, as we’ve already discussed, CalPERS’ peers (as well as CalPERS itself) routinely pays 1.0% to 1.25% management fees for much smaller commitments of around a billion dollars, and survey data supports that conclusion.

But showing either cheekiness or ignorance, Cole justified the absurd fee amount by claiming that, in essence, CalPERS had looked at a proposed firm operating budget of the investment managers and was satisfied that the $100 million was necessary to run the businesses on a lean basis:

Cole: In our construct, in our belief, we will be — go back to the original purpose [of a management fee] and provide the cost and expenses necessary to run the business on an agreed-upon operating budget. So that operating budget would be made up of compensation, that’s comp — this is salary-type compensation, or base compensation — and then as well as those costs associated with running the business – rent, travel, engagement of outside people to help in deal making. And that that number will be in place of a management fee.

This claim is laughable on multiple levels….

The post continued to debunk Cole in detail; please read the full treatment if you have time, since it gives a peek into private equity firm economics.

But all you need to remember is the bottom line.

BlackRock is offering a similar fund with management fees of less than 1% and they get even lower over time. By contrast, for a ginormously larger commitment, CalPERS is paying more than twice as much in the opening years and still more even at year 10.

CalPERS should be getting rock bottom fees, and that means lower than any in the marketplace, not just by virtue of its huge commitment but also by virtue of paying the startup costs

CalPERS’ teams won’t have the deal flow of a KKR or Blackstone, and it’s unlikely even to have the deal flow of a BlackRock, and they won’t have that level of institutional support either. That would argue for an even lower management fee and more in carry fees.

Of course, it’s possible that this whole cockamamie scheme is just a big show to give CalPERS an excuse to again try to hand its private equity business off to BlackRock.

This entry was posted in CalPERS, Dubious statistics, Investment management, Private equity, Ridiculously obvious scams on February 26, 2019 by Yves Smith.

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Source: https://www.nakedcapitalism.com/2019/02/wall-street-journal-story-confirms-that-calpers-plans-to-overpay-grossly-in-its-new-private-equity-scheme.html