Quants clone private equity: pale imitation or real deal?

Theory says replication can work, but investors are reluctant to give up private equity’s smoothed returns

Ten years ago Bain Capital set out to analyse the private equity sector’s so-called secret sauce. The $100 billion investor put to work a team of analysts to gather data on deals by the top 25 private equity shops, itself included, hunting for patterns in how they made money. The analysts got a surprise.

The study, which looked at buyout deals across a period of 30 years, showed the “vast majority” of the profits in the industry had been generated by the cheapest deals, says Daniel Rasmussen,