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.
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Finance: What are Five Questions You Can...4 Views
Finance allah shmoop what are the top five questions you
can expect to be asked in a private equity investing
interview All right people first things first before you walk
into the interview well you've checked out the company's website
right You've looked at their history the companies they've invested
in and then googled the crap out of those companies
Right Then you've looked up on link thin in quasi
stalker like fashion each of the key partners of the
firm right and especially the people you're meeting with and
of course you've jotted down the random connections like wealth
one was also a nationally ranked squash player And be
sure you note that this is very different from your
grandfather who was a nationally ranked squash grower very different
i don't want to hit those things explode all right
So this is the very basics but more importantly you
have to know whether it is actually a real private
equity investment company the old school way or if it's
really a growth capital investment company and they're huge differences
and you've got to know the diff so before you
go in all right well in the olden days private
equity was all about finding fallen angels cos who used
to be vaunted respected loved and growing Then for whatever
reason demand suddenly changed Hi newspaper industry or its management
did stupid things like tick off its distribution retail partners
Hello coach luggage We're looking at you or the brand
itself while just got tired Hi Adidas or adi das
is they say today and the stock went from trading
at twenty times even toe like five times as wall
street fell out of love with company Well private equity
investors back then would borrow a whole heap of cash
and take the company private with a mindset of fixing
it and then taking it public using higher profits to
pay down debt and return the company to growth so
that it would carry a multiple a whole lot closer
to the twenty times it carried when people loved it
Then the five times it carried when you bought it
so that's private equity old school growth capital is something
very different Growth capital is just money already healthy companies
need thio grow maur if whatever dot com had another
one hundred million dollars in cash well then it could
Open No china Yeah china And then wow if everyone
in china just bought one thing on whatever dot com
well then wow The company would add eight billion dollars
in profits to its bottom line so i could really
use that hundred million bucks That's growth capital growth capitals
Totally different Animal there's no debt no turn around No
failed company no firing of half the workforce and redoing
the union contract It's just about investing for growth at
some price Got all that All right So here we
go Five questions managed to not change one What investments
from the industry have you liked or at least followed
Answer Well you'd better have followed a few They're not
necessarily going to ask you for specifics but it'd be
fair if they had a big fat high profile winner
in their portfolio and then they asked you about it
at least asked what you thought of it The deal
company product and the answer there You loved it genius
Such insight So this is how and where i want
to learn blob blob Blob of law in private equity
with puckering and tongue Yeah All right Next question welkos
Through the math of private equity there Okay so not
technically a question but here you might start blathering about
debt to even ratios and valuations of wildly optimistic internet
companies and you'd have scorn and guffawing and then you'll
realize that they were talking about their own compensation You
know how they charge their limited partner investors and what
carrier profit participation means to the partners their golden goose
or peace and their three homes and second set of
spouses or spice or whatever it is And families Yeah
so you've got to know how private equity it's paid
in two and twenty two percent fee twenty You gonna
carry generally Alright next number three what's gonna be your
industry We're talking like davey on that hill cartoon Alright
if you've made it this far well then you already
have some area of expertise right You're a semi young
guru of banks or retail buying called amazon or tech
or argentina How about drug distribution The legal kind Hopefully
this one since your notionally an expert in it will
be an easy answer You've followed the industry for at
least three years and got a check plus on your
final homework assignment Yeah congrats there Just remember that the
guy sitting across the table from you has probably followed
that industry for thirty years knows every ceo and their
secret lovers and also got a check plus on their
final homework assignment Yeah so take that All right moving
on for so much Do you want to work Answer
lots Whatever you need Anything you name it i take
fully caffeinated i'll be there sweep the leg whatever it
takes That's the answer got it Five why not public
equity While public equity is about nerve like it's just
a sense of where the danger lurks from where the
opportunities are where the big fat drafted you could kill
and eat for a month Private equity is all about
muscle You can't brute force your way tio picking amazon
overseers in nineteen ninety seven there's just a gut feel
that public market investors get where they have access to
scant data and very little knowledge that is direct to
actually go on regulation fd or full disclosure requires companies
to basically disclose little more than their quarterly reports and
the name of their company anytime asked private equity however
Has essentially no regulation So when you invest in it
well you get every detail you'd ever want And through
sheer force and will of doing amazingly detailed quality research
talking to every vendor and every supply heart person and
union factory workers and secretaries and on and on and
on a private equity deal may not be one hundred
eggs return but very few of them go big time
bus the way public stock to do all the time
and your temperament is simply set more for muscle in
lots of hard work than it is for nerve And
you know sensing the way the wind is blowing you
know the way the innkeeper and lame is Rob does
like that All right well there you go You're all
set for your interview and most importantly don't forget the 00:06:24.045 --> [endTime] tanaka close quarters there
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