Wondering if people create LLC's and then co-invest in the deal through? What're the advantages / disadvantages through co-investing through LLC's?
Or if it's just better / easier to invest normally like one would do in public equities.
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I just invest personally, and believe everyone else at my firm does the same
You’re going to do great in PE.
Take something simple and make it infinitely complex.
There is 0 advantage to investing through an LLC vs. personally. In fact, it's objectively worse as you will need to pay setup / legal / maintenance fees.
Wouldn’t an LLC shield you from losses in case the investment loses value? If you invest 300k for example (X% LTV) and the investment loses 1-X%, wouldn’t it prevent you from being personally liable for the difference?
No, because you are already investing through your PE fund which should be structured as an LLC. The fund is already structured to be protected from losses aside from its principal investment.
You are effectively investing into a deal as a super LP with no management fees. Imagine if LPs were liable for the debts of PE portfolio companies - not sure anyone would invest in PE if that were the case.
Except for the fact that you have a ton more leverage investing through an LLC, namely being able to syndicate out various positions, more easily sell your position on secondary market without involving your firm, take on debt against the interest (if it’s transferable), invest through your 401k/IRA by way of self-directed options and then you can bypass all taxes on gains…
But yeah, totally no reason to do any of that at all.
The vast majority of PE professionals' co-invest is offered through their firm's investment vehicles and usually comes with various sweeteners like cheap leverage. There's a reason almost no one actually goes the LLC route. Might be different in RE, wouldn't know.
Also LOL @ selling your position on the secondary market. Literally not remotely a possibility for anyone working in PE. The optics alone would be incredibly damaging to the relationship between the portco and the sponsor, not to mention the impression it gives once it's time to exit.
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