Experience with private equity investment

Y

yorick

Dryer sheet wannabe
Joined
Feb 8, 2019
Messages
20
Location
Springfield, MA
Howdy,

I will be based in Europe Soon(tm), with a net worth of maybe 5 mil (not including house), with maybe another 2 mil in the next 2 years if earn-out goes well. I'll stop working in 2 years as well, or that's the plan. I'll be 56 then.

This is a windfall. I haven't had money like this before - barely at 1 mil previously. And this opens up options.

One option: An investment bank in Austria (recommended by an acquaintance) that offers private equity. The idea is to have a blend of their private equity fund and bonds, and so get 7-8% return without the risk of going all-in on stocks.

Other option: Just an S&P 500 like the Xtrackers S&P 500 UCITS ETF 4C, and bonds, in some form of mix. Low management cost (0.06%), and as much volatility as the mix gives me. It wouldn't be 7-8% a year unless I go all-in, which I won't.

My question then: Are there members here who have gone the private equity route?

If so, what has your experience been?

If not, why did you decide against it?
 
I was interested in both private equity and private debt, and looked into both earlier this year as a way to diversify.

After looking at several options I asked for the prospectus for the two alternatives that seemed most appealing to me. One prospectus was more than 300 pages, and the other was over 200 pages.

At this point in my life I'm trying to simplify my investments into things simple enough for my wife to manage if I get run over by a bus. I decided if a prospectus had to be that long I was not interested in researching it further.
 
Keeping it simple and avoiding high-cost investments including high-fee mutual funds is key. This stuff scales just fine to higher net worth.

There may be a few challenges living overseas but people I know living in Europe keep their retirement investments in the US.
 
A couple of years ago, there was a lot of hype at stodgy Vanguard that they were going to offer/add private equity offerings. I have not heard more, so maybe the initiative died a quiet death. Someone on the Bogleheads podcast said that backtesting indicated similar returns over time from the small cap value index.
 
No experience directly with private equity , but have invested in private real estate funds for many years.
Overall a good experience with good returns. I like real estate and it's nice to have some assets outside of the general market. My angel investor experience was very limited and was a loss.
 
I have made several small private company investments as a limited partner, dealing directory with the company. There was a restaurant deal that turned $50K into zero in just a year, but most have worked out with maybe a 25% IRR. Never big numbers, but fun.

I wouldn't consider the current "private equity" deals offered by packagers for a couple of reasons:

First, if the deal wasn't stinky they would have sold it to professionals like pension funds. The hassle and cost of dealing with retail investors will have only been undertaken as a last resort.

Second, there is no such thing as an unbiased determination of the investment's value. IOW a pig in a poke. The packager can tell the marks whatever he likes not only at the beginning but as time passes. It is only at the end when the asset is actually sold that anyone will know its value. In the mean time, the packager can dress up his balance sheet with whatever fiction might be necessary.

Finally, the opportunities for self-dealing are tempting. (This is true in packaged real estate deals too.) The packager simply buys the asset, then marks it up however he chooses, and takes the package to market.

My expectation is that the private equity house of cards will come crashing down at some point. The pigs in the pokes will turn out to be much smaller and skinnier than the promoters have promised and victimized pension funds will see some hair-curling write-offs.
 
OldShooter said:
if the deal wasn't stinky they would have sold it to professionals like pension funds
Click to expand...
This is the reason I didn't get into it earlier^^^^^

Likely not a big value for the poster, but I am now doing private equity and private credit through Wealthsimple.

Private equity | Wealthsimple

Investing in private companies has historically outperformed the stock market. And now, this type of investing is available at Wealthsimple.
www.wealthsimple.com www.wealthsimple.com

Invest in Private Credit | Wealthsimple

Target a 9% yield with Wealthsimple private credit and earn more money on your money, every month. Exclusively available as part of our Alternatives Investing program.
www.wealthsimple.com www.wealthsimple.com

The sum of Wealthsimple's clients are big enough they can potentially get in on things a smaller investor couldn't. I hope!

For the private equity, they say I am up 12% over the last 30 months, which is doing better than they suggested... its a long term investment.
 
RetiredHappy said:
Last time we put in $200K into private equity, the money went up in smoke. Never again.
Click to expand...
I put 48K into a startup PI fund and it is publicly traded on the Shanghai stock exchange now. It's worth about 200K now but there are limits how much I can take out. At the peak before China's real estate bubble burst it was worth about 450K. I have no interest in cashing it out now but I have to jump through some international hoops to get my money back. They did pay a 1-time dividend of 35K last year so I only have net 13K in it (not counting for the time value of money). I wouldn't do this again, it was a courtesy to an old boss who seems to have the golden touch and in this case it was also true. I don't consider this holding as part of my investable assets, though.
 
couch said:
... For the private equity, they say I am up 12% over the last 30 months, which is doing better than they suggested... its a long term investment.
Click to expand...
Just out of curiosity, where did that valuation come from? From the promoter?
 
I would suggest finding a high net worth broker. They can be had for 50 basis points and the one I use allows me to use their legal department for free. You need to concern yourself with estate and tax planning as well as investments.
 
I would be VERY careful about the private equity, and if you do decide to go that route - "experiment" with a percentage of your net worth that you can afford to lose.
 
OldShooter said:
Just out of curiosity, where did that valuation come from? From the promoter?
Click to expand...
Yes, and because most of it is still in cash, I believe it. Of course, until you go to sell almost anything, its all a guess.
 
couch said:
Yes, and because most of it is still in cash, I believe it. Of course, until you go to sell almost anything, its all a guess.
Click to expand...
I am involved with a couple of non-profit investment committees. Here are a some things that are always on the prohibited investments list:

  • Illiquid Investments
  • Investments that cannot be readily valued
  • Investments that cannot be readily transferred between custodians
  • Limited Partnerships except publicly traded MLPs
We're typically running single-digit millions and haven't found these types of restrictions to be at all limiting.

Obviously, YMMV.
 
yorick said:
Howdy,

I will be based in Europe Soon(tm), with a net worth of maybe 5 mil (not including house), with maybe another 2 mil in the next 2 years if earn-out goes well. I'll stop working in 2 years as well, or that's the plan. I'll be 56 then.

This is a windfall. I haven't had money like this before - barely at 1 mil previously. And this opens up options.

One option: An investment bank in Austria (recommended by an acquaintance) that offers private equity. The idea is to have a blend of their private equity fund and bonds, and so get 7-8% return without the risk of going all-in on stocks.

Other option: Just an S&P 500 like the Xtrackers S&P 500 UCITS ETF 4C, and bonds, in some form of mix. Low management cost (0.06%), and as much volatility as the mix gives me. It wouldn't be 7-8% a year unless I go all-in, which I won't.

My question then: Are there members here who have gone the private equity route?

If so, what has your experience been?

If not, why did you decide against it?
Click to expand...

I "got sold" a bunch of private investments...e.g. REIT, MLP, BDC with the promise that because they were private (and illiquid) that they would return ~3% above public investments of the same type.

Now, that was true, but only during the sales period when they were open to buy.

After they closed, in short order I'd get letters that all boiled down to "sorry, lower cash flow than projected" so the return started dropping...several went from 8% to 6% to 4%...with some down to 2%, in just a few years.

And keep in mind ALL the above were illiquid, with limited redemption options, starting with "apply to a quarterly lottery" for a chance at getting out, though most eventually went to "only upon your death or permanent disability."

I've still got a couple that allegedly entered their redemption period years ago, but no updates since.

I call them zombie investments since I can't take the loss until the partnership formally dissolves & I get a final K-1.

Never again...I'll stick with public, easily traded investments.

BTW, I found that these often pay ~10% commissions...why the broker was so eager to sell them. :)
 
ncbill said:
I call them zombie investments since I can't take the loss until the partnership formally dissolves & I get a final K-1.
Click to expand...
They'll probably insist that you send them the money to fund creating the final K-1.
 
I think the type of investments you will see will do a good job of making money for the syndicator. Much cleaner to do your own IMHO.
 
Why complicate life? Just throw it into an S&P 500 index and a bond fund based on your risk profile. Then go enjoy your life. Congratulations on your new found success. Just relax and be prudent. Take your time.

First thing you should do is nothing for a very long time. Let that money get a little dust on it. You’ve probably worked hard. Put it somewhere safe and productive. Then go live your life a little.
 
I'd suggest investing in as simple and conservative an investment plan as possible which will generate what you need to meet your spending needs.

It sounds like you'll have plenty of money to invest, so why go for high returns with complicated investing instead of more predictable returns with less complication. I include learning about private equity as a complication but YMMV.
 
OldShooter said:
First, if the deal wasn't stinky they would have sold it to professionals like pension funds. The hassle and cost of dealing with retail investors will have only been undertaken as a last resort.
Click to expand...
+1

I have partaken in one small private equity investment, and I would never consider doing so again. I spent 10 years waiting for the company to do anything that might monetize my investment, and for at least 3-4 of those years I was pretty certain I would end up losing a big chunk of my money... or maybe all of it. I didn't end up losing money (thankfully), but I would have done much, MUCH better just putting those funds into an S&P 500 ETF.

My strong advice is to avoid private equity and any/all other "exotic" investments, and just stick to broad-based index funds.
 
BX Blackstone has a PE division. Real estate, credit and alternative assets too.
 
I think you will find that the fees are high and it is difficult to get your money out.
 
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