Ben Gilbert: prediction

Transcript context

…On the back of 2000 and this rise, the next year in 2001, they raise the carried interest on the fund to 36% up from either 20% or 25% whatever it was before. Now remember, they’ve already closed the fund to new investors. There are still outside investors in the fund, but no new investors are coming in. Then the next year in 2002, they raised the carry to 44%. Great work if you can get it, but for context, the Sequoia and the Benchmarks out there, they have obscene carry of 30%, 44% is unprecedented. There are two interesting ways to look at this. One, they’re just trying to jack it up so high that they just purge their existing investors out where they’re saying, we’re not going to kick anyone out yet, but we’ve been closed to new business for a long time now. You should see yourself out at some point. The other way to look at this, which I think is probably the right way to look at it, is investors are arbitragers. They see a mispricing, they come into the market, they fix that mispricing. Anytime that there’s an opportunity to bring the way that a currency is trading on two different exchanges closer together, investors are serving their purpose of coming in, arbitraging that difference, taking a little bit of profit as a thank you, and then fixing the market to make the market a true weighing machine. Not a voting machine, but making it so that all prices reflect the value of what something is actually worth. In some ways, that’s what Renaissance is doing here to themselves or to their investors. They’re coming in and saying, look, this is obscene. We so clearly outperform the market, you’re still going to take this deal even if we take more of this because there’s just a mispricing here. This product should not be priced at 20%–25% carry. This product should be priced at a much higher carried interest, and you’re still going to love it. You should pay 20% carry for a firm that delivers you 15% annual returns. We’re delivering you 50% annual returns.…

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