There are many ways to invest your hard-earned money, and if you don’t feel like following the crowd and are searching for something different, you might look into private equity funds. These managed funds pool money from a variety of investors and invest in private, non-publicly traded companies and businesses. Committed capital is what you pay to get into the fund; you can pay it all at once or contribute over a specific period of time. Then you have many different choices as to how you want your capital to be invested: two of them are a specific objective fund and another is a “blind pool.”
First...specific objective fund. A fund manager, Alice, sees a great opportunity to buy a chain of pizza shops. She puts out an announcement that $2 million is needed to close the deal and asks if anyone is interested in investing $100,000. Once everyone has committed to the deal, they make their contributions accordingly. Many investors prefer this type of deal, as they know what they're getting into.
With a blind pool, on the other hand, you don’t know what you're getting into and have to trust the fund manager. Your committed capital could be used for anything that Alice thinks will be a good opportunity. The trade-off is that Alice usually earns a higher internal rate of return for a blind pool, which benefits her investors.
Don’t even think about not paying your share of capital once you commit. You could be subject to fines and penalties, such as having to pay interest on the unpaid amount, and not being invited to the party for future private equity opportunities.
Related or Semi-related Video
Finance: What are Five Questions You Can...5 Views
Finance a la Shmoop! What are five questions, you can expect to be asked, in
a public market investing interview? Alright number one, it sounds
innocent enough of a question, right? And note that you aren't being asked, so what
do you think of GE here? As a relative newbie to investing, you are not expected
to have an opinion on much, of a range, of stocks. But it certainly is fair game to
ask you about one specific stock, you come up with, that you follow. So if you [two men in conference room]
answer, I don't really know, then well, just end the interview right there
and save everyone a whole lot of time. Two, and the interviewer may ask you, why?
Why, well you said you liked Apple. Well why do you like Apple and not the fruit
the computer company and the answer can't be because Kramer says so. That's
almost always the wrong answer. It also can't be, because I like the new iPhone,
or well who doesn't like Apple. Yeah you need metrics and an opinion. Like, well
the street doesn't appreciate Apples earnings power, from the new markets [interviewee talking to interviewer]
they're entering all over the world and the new push to sell really high margin
software through its home systems and the new products are totally
underestimated and it's good if your voice gets kind of high and squeaky like
that too, shows passion. Ok dandy, here you've given a claim that is different
from what any yutz can read about in the Wall Street Journal. Which is also, almost
always wrong. And remember if the journalists were actually good at
picking stocks, they'd pick stocks. They wouldn't make one thousandth of the
money per year just writing about stocks, or opinions of other people's opinions [woman in suit crying]
about stocks and or bonds and so on, right? So you have edge in your answer,
but you also need metrics. All right, three metrics. What are apples, why do you
like them, Hmm? Answer, well the published street
estimates are, 16 times earnings this year and 14 times next, and you sound
purposely semi cryptic. Because the presumption is that anyone who follows
stocks knows, that you're referring to, published stock broker, or sell side
research reports, when you say Street and that 16 and 14 are times the published [page with definitions]
estimated earnings numbers. So you speak Street, bully. But then you give edge, or
alpha. That is you say something like, the street
isn't appreciating the mountains of cash, Apple has over seas. The market cap of
the company is a trillion, but it has 350 billion of cash and no real debt. So if
you X out the 350 from the trillion, it's 650 billion dollars of equity cap and [man talking]
well on those numbers it's just twelve and ten times earnings. I think it's a
buy here. Yeah all right pretty good. Four vocab, well you won't be asked for a much
vocab lingo in your interview, or if you are the interviewer is just being a dick.
But by clearly elucidating the difference between, market cap and equity
cap. A subtle but important difference. In an Apple's case, well it's a huge and [mother and daughter swinging]
meaningful swing. Well then you are conveying the sense that you were
actually awake in class that day. Yeah, nice job. All right, moving on. Five, the
plan, so what's the plan. You have to have one. The right answer when the
interviewer asks you, what's your plan? Is usually something like, well I'd like to
eat nails 80 hours a week here, for three years, then go to business school and
work on my golf game. Or it might be, I don't want an MBA, I'm gonna bring a [farmer talking]
watering can, to plant my roots in whatever firm I go to next. So I'm having
deep conversations with just a handful of firms, I've come to admire. Or it might
be, I really should have answered the questions you asked better, I'll go now.
Yeah, or it might even be, sir for the millionth time, I'm not a financial
analyst, I work at McDonald's and I'm just trying to give you back your change.
You wanted fries with that, so here you go. [McDonalds employee]
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