4 ms·
> Softbank could pocket 2.7% of $70B ($1.89B a year) by just investing in an index. This is totally untrue. Volatility in the short term -- one serious year do
by loeber 8y ago
> Softbank could pocket 2.7% of $70B ($1.89B a year) by just investing in an index.
This is totally untrue. Volatility in the short term -- one serious year down -- can sink you.
No sane actor treats S&P's average rate of return as the risk-free rate.
- flyinglizard 8y agoI was under the impression fund money is typically locked for around 10 years or so.
- jldugger 8y agoEven the 10 year rate of return has variance. The risk-free rate of return for 10 years should pretty much be 10 year TIPS bonds.
- soared 8y agoI don't know more than the basics, my thought was if you pocket $2b/year and invest it, you have $13B+ in 10 years (plus your own $28b you've invested that I didn't include). So $40B to whether a storm every 10 years seems reasonable.
- DSingularity 8y agoI think you are ignoring a lot of factors that come into play when you are managing assets on the scale of 70B$. It is easy to sink 1000$ in a minute into an index fund using Robinhood. It is not as easy when you are talking numbers on this scale.
- soared 8y ago> Oversimplified napkin math for fun:
- kgwgk 8y agoWe are having fun!
- neuromancer2701 8y ago99% in SPY, 1% in 80% SPY Put option should cover your downside.
- estsauver 8y agoI think you're going to find the 80% SPY Put option doesn't have liquidity for 700 million$ of options.
- ThrustVectoring 8y agoA serious economic downturn is likely to sink the fund entirely anyhow, so you might as well optimize for the case where that doesn't happen. This is one of the serious principle-agent problems in investing in general - equity holders and management aren't incentivized to preserve value for creditors, so they take more risk than is ideal for the overall capital structure.
- whatok 8y agoDepending on how you define a "serious economic downturn". The one thing funds that invest in private companies has it that they can mark-to-model rather than mark-to-market. If it's not a prolonged downturn, private funds can much more easily ride out downturns than funds that invest in public securities and have to actually mark things in a realistic manner. Given the longer lockups of most PE funds, investors are also along for the ride.