Episode 405 · 2026-09-03 · 01:02:17 · Original in Finnish
The great return illusion in private equity | Saku Sairanen | Negotiator 405
Originally published as “Pääomasijoittamisen suuri tuottoharha | Saku Sairanen | Neuvottelija 405”
Fundco managing partner Saku Sairanen shows how private equity's return advantage inverted in three years: in Bain & Company's 2023 report PE funds still beat the S&P 500 across every horizon, while in this year's report the index wins on every horizon except twenty years. The episode unpacks the mechanism — deals struck in 2021 at high multiples, rates rising from zero to five, leverage turning against returns — and then the secondaries and evergreen loop in which a stake bought below net asset value is marked at 100 per cent the next day and the resulting IRR becomes the sales pitch to smaller investors. Two case studies from opposite extremes, Bain's Kioxia and Thoma Bravo's Medallia, plus Finland's capital shortage and an open disagreement about a named competitor's model. The guest sells fund selection for a living, which the episode discloses; nothing here is investment advice.
Core theses
- Private equity's excess return over the S&P 500 inverted within three years, and the mechanism is identifiable: 2021 vintage multiples plus a move from zero rates to five turns leverage from a tailwind into a drag.
- In the secondaries and evergreen loop a stake bought below net asset value can be marked at 100 per cent the next day, and the IRR that produces becomes the pitch to the next, smaller investor.
- Illiquidity is the product, not a side effect — which is why redemption limits are the risk to read first when cash flow turns.
- The guest sells fund selection, so his critique of competing models is disclosed as an interested one rather than presented as neutral analysis.
Watch and listen
Key moments
- 00:00 — When private equity is worth it, and when it is not
- 00:39 — Private equity returns fell behind the S&P 500
- 02:13 — How illiquid investments were pushed down to smaller investors
- 02:56 — The guest: Fundco partner Saku Sairanen
- 03:16 — Taking apart the American private equity myth
- 03:56 — Private equity: product, diversification, or paper money?
- 04:12 — The liquidity gap between an index and a fund commitment
- 05:53 — Who Saku Sairanen is and what Fundco does
- 07:03 — Fundco's business model and its due diligence process
- 08:01 — Past returns do not guarantee future ones
- 09:11 — Why the best partner is chosen even at a lower price
- 10:14 — Leverage explains part of private equity's returns
- 12:02 — The secondary market and evergreen funds introduced
- 12:32 — LP-led secondary: selling a fund stake onward
- 13:35 — GP-led secondary and the continuation fund explained
- 15:03 — Sairanen's critique: 2021's toxic waste became crown jewels
- 17:02 — How a continuation fund deal is actually executed
- 18:03 — Evergreen funds moved from infrastructure into private equity
- 20:05 — Sairanen's critique: buy at 80, book it at 100
- 21:10 — The risk: cash flow reverses and redemptions are capped
- 23:45 — The Kimi Räikkönen example: a 53 per cent return exercise
- 27:05 — Case: Bain Capital and a memory chip manufacturer
- 29:27 — Case: Medallia, a PIK loan and Blackstone's rescue
- 33:07 — The AI boom upends SaaS company valuations
- 34:04 — Why a good manager benefits from a market rupture
- 35:29 — Data and network advantages at the largest PE houses
- 37:02 — Joint ventures with Google and OpenAI
- 40:46 — How Fundco selects and analyses funds
- 43:12 — Fundco's own track record is still being built
- 46:04 — Who private equity actually suits
- 48:52 — The background and idea of Fundco's Finland fund
- 50:00 — The Finland fund's structure: VC funds and direct investments
- 53:42 — Finnish pension capital leaving the country
- 56:18 — Fundco's fee model is transparent
- 59:34 — Comparing Fundco's model with AlterInvest and Hamilton Lane
- 1:02:10 — Closing and thanks to viewers
Summary
Fundco managing partner Saku Sairanen shows how private equity’s return advantage inverted in three years: in Bain & Company’s 2023 report PE funds still beat the S&P 500 across every horizon, while in this year’s report the index wins on every horizon except twenty years. The episode unpacks the mechanism — deals struck in 2021 at high multiples, rates rising from zero to five, leverage turning against returns — and then the secondaries and evergreen loop in which a stake bought below net asset value is marked at 100 per cent the next day and the resulting IRR becomes the sales pitch to smaller investors. Two case studies from opposite extremes, Bain’s Kioxia and Thoma Bravo’s Medallia, plus Finland’s capital shortage and an open disagreement about a named competitor’s model. The guest sells fund selection for a living, which the episode discloses; nothing here is investment advice.
What changed, and why
The headline finding is a reversal rather than a slump. In Bain & Company’s 2023 report, private equity funds beat the S&P 500 across every measured horizon; in the current report the index wins on every horizon except twenty years. Sairanen’s explanation is mechanical rather than moral: funds committed capital in 2021 at high multiples, policy rates then went from zero to five, and leverage that had been a tailwind became a drag.
The loop worth understanding
The part of the episode with the widest application is the secondaries and evergreen structure. A fund stake can be bought below net asset value and carried at full value almost immediately; the internal rate of return that step produces then becomes the marketing material shown to the next investor down the size ladder. Sairanen’s warning is about what happens when cash flow reverses: in a structure that promises liquidity on illiquid assets, the first defence is a cap on redemptions.
Two cases from opposite ends
Bain’s investment in a memory chip manufacturer and Thoma Bravo’s in Medallia are used as the good and bad extremes — the second involving a PIK loan and a rescue. They are useful precisely because the guest does not pretend the average outcome looks like either.
Watch
The recording lives on the Neuvottelija channel: Pääomasijoittamisen suuri tuottoharha | Saku Sairanen | Neuvottelija 405. A Finnish edition of this episode is published at www.neuvottelija.fi.
In depth
The Neuvottelija AI editions carry a long-form write-up of this episode: English · suomeksi.
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People and topics
Guests: Saku Sairanen