What Barbarians Like to Take Private (Ben Inker and John Pease)

Private equity's real risk: Inker and Pease argue the worry isn't illiquidity but insolvency. Years of strong marks have erased the idea of "true downside," yet 45 years of LBO data show buyout targets are smaller, less profitable, more levered, and bought at higher prices than size-peers — a full quality decile below small caps, which are themselves far junkier than the S&P 500. Software concentration: Software accounts for roughly 40% of recent public-to-private LBO deals — the most concentrated industry bet in buyout history, versus low-single-digit to ~10% weights in public small- and large-cap indices. Their concern: "the AI world will eat software," plus multiple derating risk. Compounding exposure: Venture capital portfolios are even more software-concentrated, and private credit is now revealing software exposure, so endowment-style portfolios carry more of this risk than buyout data alone implies. Hedging implication: They say pairing PE with passive public equity leaves a huge small-cap/low-quality tilt. GMO's preferred counter is long large high-quality, short smaller junkier stocks (their Quality Spectrum Strategy runs 175% long / 75% short) rather than an index long-S&P/short-Russell 2000 hedge. Manager selection: Inker sees PE performance persistence deteriorating; interim fund returns don't predict future results, so most institutions drift toward median. He questions target PE allocations, favouring an upper limit — there is no passive fallback in private equity. Bottom line: Inker views PE as a leveraged, low-quality, software-concentrated equity bet that allocators should hedge with high-quality public equity exposure and hold only where manager conviction is genuinely high.