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Several times in the recent past I have extolled the HumbleDollar archives as a place to find some great information. I just came across a six year old Grossman article that is relevant today. Private Equity investments are finding their way into 401K and other investment vehicles that are accessible to common folk like you and me. Adam provides some great information about Private Equity, as well as some great questions to consider if considering such an investment.
https://humbledollar.com/2019/02/private-matters/
I’ve been involved with PE for over 25 years. I’ve seen the reporting that the big firms provide and know that their valuation methodologies involve projections that often do not come to pass. The 2% fee and 20% cut of gains is very rich for those that balk at 1% fees. I did a study of returns in my companies PE fund portfolio. 1/3 lost the entire investment, 1/3 broke even and 1/3 hit the ball out of the park.
I’ve never invested in a PE fund and never will. I have invested in PE owned businesses where I had access to financials and some say in how things were done. I’ve had some very successful exits and one failure. I would never recommend 401k investments in PE.
Harold, thanks much for those statistics.
I found this article to offer some cautious insight:
https://ofdollarsanddata.com/the-one-thing-my-worst-investments-had-in-common/
Great article, Marcus. I learned the hard way about Illiquidity many years ago when I bought an REIT. Lucky for me the investment was only a couple thousand dollars; a cheap lesson.
#2 on Adam’s 2019 article concerned Swensen (Yale, lots of private equity).
This morning’s daily email from Adam concerned Swensen’s book “Unconventional Success”, which recommended “equity-oriented,
broadly diversified portfolios without the active management component.”
My take: “All the cool kids say you can get home quicker taking a shortcut through a dark alley instead of the longer path that’s got street lights everywhere and even goes past the police station.”
Walking is good for you.
So true, thanks, Langston.
Dan. Thanks for the article link. Personally, there’s about as much chance of me investing in private equity as there is of me becoming a landlord—which is to say, absolutely none. We’re talking rounding-error-close-to-zero territory here. Neither is happening in this lifetime.
That makes two of us, Mark. I was thinking of the youngsters who may be tempted to put retirement savings in such a thing.