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Look like everyone, become a commodity
The costume
Private equity has a costume: how its people dress, how they talk, what they read, and what they listen to. When everyone regurgitates the same material, an investor choosing among them has one thing left to compare, which is the returns each can put up and what they have done lately.
Going the other way
The founder of Permanent Equity went the other way. When he started raising his first fund, he had a small track record, no debt, a long time horizon, a totally different fee model, and a differently structured firm. Numerous people with more experience and education told him all the reasons it would fail, including his colleagues at Notre Dame. A hundred people can tell you no, one or two can tell you yes, and you can still go do it.
The reaction
The firm now creates a very strong reaction. People look at it and conclude it is the dumbest thing they have ever seen and will never work, or they totally get it and are in. A couple of friends who look and sound like everyone else are struggling to raise capital right now. Standing out and having people tell you you're wrong is a lot better than not mattering.
Why do commodities compete only on price?
When buyers cannot tell products apart, the only remaining difference is cost, so sellers undercut one another. Economists call the extreme case perfect competition, in which every seller offers an identical product. Harvard's Michael Porter described differentiation as one of three generic strategies in his 1980 book Competitive Strategy, alongside cost leadership and focus.
Why do investors favor familiar-looking managers?
Professional investors answer to others, so a conventional choice that fails is easier to defend than an unusual one that fails. Economist John Maynard Keynes made this point in his 1936 General Theory, writing that worldly wisdom holds it better for reputation to fail conventionally than to succeed unconventionally. A similar saying in the technology industry in later decades held that nobody gets fired for buying IBM.
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