What are the key takeaways from this Rational Reminder episode?

Key insights include: **Expected Return Framework:** Calculate net expected returns by starting with gross asset class return, adding leverage impact, then subtracting interest costs, management fees, and performance fees. One private real estate fund analysis yielded only 8% expected return versus 6.5-7% for public equities, insufficient premium for illiquidity risk.; **Duration Mismatch Red Flag:** A private mortgage investment corporation claimed loans hadn't renewed yet to explain flat returns despite rising rates, but admitted average duration under two years. They were extending loans at old rates because property values fell 30%, preventing defaults that would trigger NAV markdowns.; **Performance Fee Asymmetry:** With 20% performance fees, investors pay full fees on winning deals but receive no rebate on losers. As return variance increases across deals, performance fees can consume enough gains from winners to leave investors net negative despite 10% average gross returns across the portfolio.

What did Aravind Sithamparapillai discuss on Rational Reminder?

Aravind Sithamparapillai examines alternative investments through rigorous due diligence, revealing misleading marketing tactics, hidden fee structures, performance measurement flaws, and operational risks that most financial advisors overlook when allocating client capital to private funds. Key topics include: **Expected Return Framework:** Calculate net expected returns by starting with gross asset class return, adding leverage impact, then subtracting interest costs, management fees, and performance fees. One private real estate fund analysis yielded only 8% expected return versus 6.5-7% for public equities, insufficient premium for illiquidity risk.; **Duration Mismatch Red Flag:** A private mortgage investment corporation claimed loans hadn't renewed yet to explain flat returns despite rising rates, but admitted average duration under two years. They were extending loans at old rates because property values fell 30%, preventing defaults that would trigger NAV markdowns..

How long is this episode of Rational Reminder?

This episode is 76 minutes long. SignalCast provides an AI-generated summary so you can get the key insights in about 3 minutes.

Rational Reminder

Episode 386: Is anyone doing dd? with Aravind Sithamparapillai

December 4, 2025

76 min episode · 2 min read

Aravind Sithamparapillai

Episode

76 min

Read time

2 min

Topics

Personal Finance, Investing, Fundraising & VC

AI-Generated Summary

Published Jan 1, 2026

Key Takeaways

✓Expected Return Framework: Calculate net expected returns by starting with gross asset class return, adding leverage impact, then subtracting interest costs, management fees, and performance fees. One private real estate fund analysis yielded only 8% expected return versus 6.5-7% for public equities, insufficient premium for illiquidity risk.
✓Duration Mismatch Red Flag: A private mortgage investment corporation claimed loans hadn't renewed yet to explain flat returns despite rising rates, but admitted average duration under two years. They were extending loans at old rates because property values fell 30%, preventing defaults that would trigger NAV markdowns.
✓Performance Fee Asymmetry: With 20% performance fees, investors pay full fees on winning deals but receive no rebate on losers. As return variance increases across deals, performance fees can consume enough gains from winners to leave investors net negative despite 10% average gross returns across the portfolio.
✓Benchmark Manipulation: Private fund marketing compares gross benchmark returns against public indices without adjusting for fees. One private credit fund showed 9% returns matching S&P 500, but charged 1.5% management fee plus 15% performance fee above 5% hurdle, dramatically reducing actual investor returns.
✓Rebalancing Impossibility: Non-correlation benefits require timely rebalancing, but private funds often have quarterly redemptions, six-month lock-ups, or gating provisions. During 2022 market volatility, investors couldn't sell appreciated alternatives to buy discounted public equities, negating the diversification benefit entirely.

What It Covers

Aravind Sithamparapillai examines alternative investments through rigorous due diligence, revealing misleading marketing tactics, hidden fee structures, performance measurement flaws, and operational risks that most financial advisors overlook when allocating client capital to private funds.

Key Questions Answered

•Expected Return Framework: Calculate net expected returns by starting with gross asset class return, adding leverage impact, then subtracting interest costs, management fees, and performance fees. One private real estate fund analysis yielded only 8% expected return versus 6.5-7% for public equities, insufficient premium for illiquidity risk.
•Duration Mismatch Red Flag: A private mortgage investment corporation claimed loans hadn't renewed yet to explain flat returns despite rising rates, but admitted average duration under two years. They were extending loans at old rates because property values fell 30%, preventing defaults that would trigger NAV markdowns.
•Performance Fee Asymmetry: With 20% performance fees, investors pay full fees on winning deals but receive no rebate on losers. As return variance increases across deals, performance fees can consume enough gains from winners to leave investors net negative despite 10% average gross returns across the portfolio.
•Benchmark Manipulation: Private fund marketing compares gross benchmark returns against public indices without adjusting for fees. One private credit fund showed 9% returns matching S&P 500, but charged 1.5% management fee plus 15% performance fee above 5% hurdle, dramatically reducing actual investor returns.
•Rebalancing Impossibility: Non-correlation benefits require timely rebalancing, but private funds often have quarterly redemptions, six-month lock-ups, or gating provisions. During 2022 market volatility, investors couldn't sell appreciated alternatives to buy discounted public equities, negating the diversification benefit entirely.

Notable Moment

At a 2023 conference, a presenter accidentally said "oh no" into the microphone when Aravind raised his hand again after catching contradictory statements about mortgage renewal timelines and portfolio duration, revealing the fund was extending loans to avoid marking down underwater properties.

Know someone who'd find this useful?

Episode Transcript

This is the Rational Reminder podcast, a weekly reality check on sensible investing and financial decision making from two Canadians. We're hosted by me, Benjamin Felix, chief investment officer, and Cameron Passmore, chief executive officer at PWL Capital. Welcome to episode three eighty six. And, Ben, we welcome the special guest this week. Yeah. Today, we're joined by Aravind Sethamparapillai, and I have said your name on the podcast before so people may remember. I pronounced it perfectly, I believe, this time and last time. You can correct me if I'm wrong. Was my pronunciation good? You nailed it, except it's Sutemparapule, not darn. The lie. Darn. Everyone misses that. I was close. Aravind is a fellow financial planner here in Canada. He is one of the biggest nerds that I know, and he has a, like, almost pathological nerdiness where he digs into stuff to the point where it's like, man, he just digs into stuff deeper than most people I've ever met. So he's done some really interesting work on alternative investments, and he did a presentation on this topic at the IAFP conference, the Institute of Advanced Financial Planners conference this year. And so we thought we'd have him on to have a similar discussion covering kind of the same rough outline of what you talked about at the conference. You and I, Aravind, we wrote one public post together where you had done some work on the true cost of contributing to CPP. So we coauthored some stuff on that. So this is not the first time we've nerded out together. You will be coming on MoneyScope as well to talk about some other nerdiness Speaking of nerdiness. On a pension plan for health care professionals here in Canada. Anyway, that's enough of an introduction. We'll jump into the questions in a sec. But Cameron, do you have anything? I just think it's fun to have you here, Aravind. And the timing is interesting because as you guys know, I've spent a lot of time talking to a lot of people kind of all over the industry and have traveled a lot across Canada and The US this fall. And this topic of alts, and as you guys know, our focus is and our beliefs we share deeply. I know you agree, Arvind. Planning matters and markets work. Markets do a good job of delivering good returns. We believe that most people mock it up by trying to beat the markets. And so many conversations with so many people in this industry are all about alts. That's wild. I mean, you're in the Toronto area. I was in Toronto this week with Ben. And it sounds like this is after talking to a number of people. Alts are part of the financial planning culture in Toronto. You can't just do, God forbid, you do indexing and believe the markets work. Our true value prop is the ability to bring alts to you because 60 40 is …

Get the full transcript (15,626 words) + summary by email — free

One-time email with the complete transcript and AI summary of this episode. No account needed.

One email, no spam. We’ll also show you what SignalCast does.

Browse all Rational Reminder transcripts →