At Harvard, Cheap Wall Street Buyout Funds Take on a $4 Trillion Industry

For 25 years, Randy Cohen has sent some of his strongest Harvard Business School students to the pinnacle of Wall Street, an industry he describes as “a $4 trillion steamroller.” That juggernaut is private equity, the business of buying companies and selling them at a profit, often juicing returns with financial engineering, borrowed money, tax breaks, and cost-cutting.

PE attracts the best and the brightest because they know they can grow fabulously rich by collecting the industry’s hefty management fees—2% a year or more of billions of dollars invested in a fund—and keeping a fifth of the profits for themselves.

Yet here was Professor Cohen, on a September afternoon, telling his students that he’d come up with a cheaper, perhaps better alternative that he hopes to offer to the masses. His bold claim: He can compete with these legendary PE firms by replicating their returns through a basket of publicly traded companies, spiced up with debt and options.