Assume you are an eldery fella at 45, have realized some carry, etc.
Now you have ~$10m to invest and you work at a firm with a bunch of various PE products + have access to a few other funds through friends etc.
Would you ever invest in public stonkz if you have access to PE funds at a discounted rate?
It's not like you really need the liquidity and the long term gains are quite a bit better...especially with the discount factored in?
Assuming you get no-fee investing ops in your own funds...it's actually very hard to lose money on privates VS public. And you probably dont need the liquidity if you're making $$$ in base salary + have a non-spendy lifestyle?
Diversification is important
But wondering, how much of a discount do you find these days in pe funds and is that typical?
Well if you work for one there's usually no-fee coinvest. So that makes them a no brainer...especially at old/established funds.
I didn’t know co-invest purchases were at a discount. Also, can people invest any amount to coinvest or is there a limit?
Diversification is as important as the efficient market hypothesis is accurate. What's important is being right.
I am 32, and have all of my money tied up in our partners fund and co-invest. Recently requesting my cash bonus be converted to GP Equity, and have began trying to purchase shares of the management company.
It is a boom or bust play, but I have a fallback, wealthy parents who have about a ~5.5mm dynasty trust that will go to me. I figure I can be risky because I have a fallback if my fund was to dry up, but if I didn't have that I would be way more diversified.
Ok so you're 32
What would happen if you left your current fund? Wouldn't you forfeit a large portion of your carry / net worth
Nothing would happen to my investments in the partners funds, GP equity and co invest, I would lose access the capital call leverage, so I would need to front more at each call. I also would need to pay a 1% per year Admin fee. Basically for them doing all stuff that is fund expenses the middle office accounting, tax stuff.
My carry in the current fund set. Nothing happens to it, but obviously I would lose carry on go forward funds
I would be absolutely willing to put the full amount I have to invest in private equity funds I manage. Obviously how specifically this breaks down depends on the funds that are available to me but I am entirely comfortable chasing yield. But I am also in my 20s. I would imagine I would have more hesitancy in my 40s but yeah. Putting my money back into the fund in significant chunks is something I’d expect to be comfortable with
As a secondary investor, a lot of my deals are with individuals who put all their money into illiquid assets and need to now collateralize their positions to generate cashflow. It is never good to not keep a small portion of your portfolio liquid - life happens and getting access to cash quickly and without a discount is helpful.
How do they do that? By selling shares on secondary market or taking out a loan on those shares?
Both
what did they need cash for that couldn’t be covered by base + bonus? all the life events i could think of can be planned for
Illness? Injury? Family issue? Laid off? Bad planning? Life priority / plan changed? Liquidity takes a lot longer than expected?
loads of reasons
Most private equity firms expect you to invest in the platform.
Private equity is essentially levered small cap value equities (great returns since PE took off as an asset class), you can and should diversify, as well as being able to replicate its rough performance with less fees and more diversification (crude example: buying small cap value ETFs such as VBR on margin)
Poor example. You can make operational improvements in private equity which results in value enhancement. Not possible in public equities.
"Operational improvements/gains in efficiency" is a way smaller share of PE's outperformance than you think when compared to expansion (organic or inorganic) via cheap credit (low rates in recent history) which again is another way of saying it's levered small cap value
Executives of public companies have every incentive to improve their companies as much as possible
"Would you ever pay a management fee for the right to sell 100% of your personal assets' worth of unhedged puts on rates?"
“Assuming you get no-fee investing ops in your own funds...it's actually very hard to lose money on privates VS public”
LOLLLLLLL
Reading "elderly fella at 45"
Ha, I'm 31 this year and figure any of us older than 25 are in the old man camp in this forum :)
Invest in secondaries. Heard some stat a couple years ago on how basically less than 1% of secondaries funds do sub 1.0x moic or something (or could’ve been a different metric, I forgot)
Wow is it still generally like that today?
You would have to be a spectacularly bad investor to lose money in secondaries... that's half the value play
What is expected IRR for secondary funds? Is it the same as normal buyout?
I've been more or less forced to as a VP but I plan to begin diversifying aggressively as soon as carry starts getting realized.
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