In this episode of Excess Returns, Justin and special guest host Kai Wu of Sparkline Capital are joined by Verdad’s Dan Rasmussen for a deep dive into the hidden risks lurking in private equity—and why they may be more dangerous than investors realize.

Rasmussen, a long-time critic of the asset class, explains why the allure of illiquidity, stale pricing, and past outperformance has led to dangerous capital misallocations. Along the way, we explore the origins of the Yale model, the current liquidity crunch, volatility laundering, and whether small-cap value could be the better bet today. We also dig into bubbles, biotech, and whether AI will concentrate or diffuse economic power.

🔑 Topics covered:

Why private equity may not be what investors think it is
The original logic of the Yale model—and how it’s broken today
Leverage, small company risk, and the illusion of low volatility
How private equity portfolios are “money traps” in disguise
Small-cap value as public market private equity
Why biotech could be the next overlooked opportunity
How innovation bubbles spark long-term progress
AI’s capital intensity and implications for Big Tech dominance
Behavioral risks in institutional vs. retail investing

📍 Timestamps:
00:00 – Why private equity could be a money trap
03:00 – The over-allocation to small, low-margin, highly levered companies
07:25 – Why private equity’s popularity may signal poor future returns
14:30 – The Yale Model’s origin story and how it morphed
19:25 – Collapse in private equity distributions
23:34 – Volatility laundering and misleading risk metrics
27:00 – What happens when private equity goes public
31:00 – Do lockups help investor behavior—or prevent learning?
35:10 – Could small-cap value be a better alternative to private equity?
42:00 – Why biotech is the most beaten-up corner of small caps
47:00 – Bubbles, innovation, and the role of speculative excess
51:00 – AI, capital intensity, and a return to economic gravity
54:00 – Will AI empower monopolies or smaller players?

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The Bubble No One Can Sell | Dan Rasmussen on the Private Equity Trap

Excess Returns