SUBSCRIPTION LINE FINANCING IS ‘THE TELL’

“The word “Snake” has lost much of its derisive character, but there was a time when the term (from  “Snake Eater”) was a taunt reflecting on the-purely imaginary-diet of the West Virginia Mountaineers.

In some of the factories the departments sometimes “worked in a pool”; that is, the earnings of, say, men working on a bias cutter were pooled and all shared alike in the total piece work pay. The Snakes, told about the pool, were known to report to work in high hip boots.”   A.W. Jones “Life, Liberty, & Property”

I’ve taken my shot at Private Equity and was very disappointed Warren Buffett did not comment on it at Berkshire’s 2017 annual meeting in the same manner he did with hedge funds last year1.  Therefore I’ll add some fuel to the fire.

I believe astounding PE returns are fictitious and institutional investors are misguided in using those returns as the basis for reinvesting in PE.  That is if the returns are even available.  As I have analyzed and outlined, the logic doesn’t make sense.  In fact, the returns are so incongruous from an efficient-market hypothesis, and the lack of granularity encompassing them so opaque, that they have a Madoff like quality about them.

Thus it was interesting to read six months ago about a heretofore unfamiliar term to this capital markets veteran, called Subscription Line Financing (SLF).  No furor arose then, nor several months later when elaborated upon further in a Bloomberg article questioning its use, and I am of the belief that the journalists are not fully aware of what they’ve uncovered.  That’s probably because the decision-makers, aka institutional investors and consultants, also don’t have a handle on the full ramifications of what SLF means vis-a-vis their underlying portfolio.  As an example of this let’s examine a snippet from the aforementioned Bloomberg article: Continue reading

  1. He definitely would have been ahead of the curve if he had []