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b'In Episode 90, we welcome Founder and Portfolio Manager of Verdad, Dan Rasmussen.\\nWe start with a brief walk-through of Dan\\u2019s background. It involves a Harvard education, a New York Times best-selling book, a stint at Bridgewater, consulting work with Bain, then his own foray into private equity.\\nTurning to investments, Meb lays the groundwork by saying how many people misunderstand the private equity market in general (often confusing it for venture capital). He asks Dan for an overview, then some specifics on the state of the industry today.\\nDan clarifies that when he references \\u201cprivate equity\\u201d (PE), he\\u2019s talking about the leveraged buyout industry \\u2013 think \\u201cBarbarians at the Gate.\\u201d He tells us that PE has been considered the crown jewel of the alternative world, then provides a wonderful recap of its evolution \\u2013 how this market outperformed for many years (think Mitt Romney in the 80s, when he was buying businesses for 4-6 times EBIT), yet its outsized returns led to endowments flooding the market with capital ($200 - $300 billion per year, which was close to triple the pre-Global Financial Crisis average), driving up valuations. Today, deals are getting done at valuations that are nowhere near as low as in the early days. And so, the outsized returns simply haven\\u2019t existed. Yet that hasn\\u2019t stopped institutional investors from believing they will. Dan tells us about a study highlighting by just how much institutional managers believe PE will outperform in coming years\\u2026yet according to Dan\\u2019s research, their number is way off.\\nDan then delves into leverage and the value premium, telling us how important this interaction is. He gives us great details on the subject based on a study he was a part of while at Bain Consulting. The takeaway was that roughly 50% of deals done at multiples greater than 10x EBITDA posted 0% returns to investors, net of fees.\\nMeb asks about the response to this from the private equity powers that be\\u2026 What is their perspective on adding value improvements, enabling a higher price? Dan gives us his thoughts, but the general take is that doing deals at 10x EBITDA is nuts.\\nNext, the guys delve into Dan\\u2019s strategy at Verdad. In essence, he\\u2019s taking the strategy that made PE so successful in the 80s and applying it to public markets. Specifically, he\\u2019s looking for microcap stocks, trading at sub-7 EBITDAs, that are 50%-60% levered. With this composition, this mirrors PE deals.\\nThe guys then get neck-deep in all things private equity\\u2026 control premiums, fees, and illiquidity\\u2026 the real engine behind PE alpha\\u2026 sector bets\\u2026 portfolio weights\\u2026\\nMeb and Dan land on \\u201cdebt\\u201d for a while. Dan tell us how value investors tend to have an aversion to debt. But if you\\u2019re buying cheap companies that are cash-flow generating, then having debt and paying it off is a good thing. Debt paydown is a better form of capital allocation than dividends or buybacks because it improves the health of the biz, leading to multiple expansion.\\nThe guys cover so much ground in this episode, it\\u2019s hard to capture it all here: They discuss how to balance quantitative rules with a human element\\u2026 The Japanese market today, and why it\\u2019s a great set-up for Dan\\u2019s PE strategy\\u2026 Rules that should work across geography, asset classes, markets, and time\\u2026 Currency hedging\\u2026 And far more.\\nFor the moment, we\\u2019re still ending shows with \\u201cyour most memorable trade.\\u201d Dan\\u2019s involves a Japanese company that had been blemished by a corporate scandal.\\xa0Did it turn out for or against him? Find out in Episode 90.\\nLearn more about your ad choices. Visit megaphone.fm/adchoices'