David Friedberg

That means to manage through periods where the stock markets go down and to manage through periods of volatility.

The best way to do that was to have what's called a 60-40 allocation, 60% to bonds and 40% to equities.

Over many years, especially when we artificially suppressed rates at zero,

through Obama, a lot of people started to move their allocations away from 60-40, and they started to make more and more investments further out on the risk curve.

The biggest beneficiaries of that were venture capital, private equity, and hedge funds.

The thing with private equity is that because rates were zero, they had an infinite amount of borrowing capacity, had very little downside to them.

And so they were able to manufacture returns much faster than venture capital and hedge funds could.

So as a result, you had an initial group of people that were defining the asset class, making a ton of money,

And then you had all these fast followers that said, well, if they're doing it, I can do it too.

So far, so good.

But then always what happens is then you have this flood of laggards that just flood the zone.

And it's these laggards that make it very difficult to generate returns because they start overpaying for assets.

They start mismanaging and undermanaging the assets that they do own.

And so where we are is that private equity has seen a very consistent way of returning money to help improve that 60-40 portfolio.

As a result, they got a lot of money, but then that created a lot of competition.

And so that's why you see this hockey stick graph, Jason.

And when you see that kind of graph, it doesn't matter what asset class it is, the returns go to zero.

And so we've seen this in venture capital.

We've seen this in hedge funds.

And we're now going to see this in private equity.