How much to coinvest as an Analyst at MF?
I'm an analyst at a MF in a non-PE investing role. Our firm lets us coinvest with leverage, and I am trying to figure out how much to commit to their next fund.
Is it worth going all in given I'm in my early 20s?
Based on latest MF returns figures just throw the money into the market
The recent returns have been top quartile, leverage offered is pretty appealing and loss ratio pretty good.
Can you give a sense on leverage? Is it 1:1, 2:1, etc.? Bullet or cash interest? At the fund level or deal level?
Fund level or deal level?
depending on how this is structured, you might not see your money for a while. I think, FWIW, that this is both good and bad. Obviously bad if you need the liquidity to buy something “responsible” like a house etc, but IMO can be good if you’re the type to day trade / buy stocks and shit that look good but end up being duds.
I don't mind the illiquidity, the alternative is putting money in the S&P 500
Zero. There was a big thread on this recently
Depends which fund? If Carlyle, I’d just stick with the 0.65% JP Morgan’s checking account offers you.
Echoing others. This was the biggest mistake for me. Even on a gross basis, index funds win 100% of the time. Just do 0
Zero, index funds return better, and there's no lock-up period. PE is ultimately an asset class that is an alternative investment to generate returns not directly tied to public markets. It's not a product for someone coming out of college but rather for instiutions with longer-term views.
While it's true that recently index funds have returned better than most MFs, the key here is the leverage. Depending on your terms, getting 50-70% LTV could generate greater returns. Since you're young, I assume you don't need liquidity any time soon so less important of a factor for you
Other question is if you invest deal by deal or just in the fund. If your firm has a track record of outlier deals (3x+) then it could be more interesting to try to catch a few breakout deals. But you will also only have exposure to a subset of deals in a fund (the ones that are done while you're employed)
Would strongly recommend against going all-in. In a way, you're triple levered (co-invest leverage, underlying leverage on the deals, and your job)
Also check vesting terms. Have seen some horrendous terms where firm buys back unvested co-invest at cost so you've essentially paid interest for nothing
Everyone is saying index funds perform better, but that’s only part of the picture. Try getting personal leverage to invest in anything outside RE, good luck.
Depending on the level leverage your firm is offering you, co-invest can be meaningfully better than public markets if you don’t need the immediate liquidity.
My firm gives us 70% LTV, hence to invest $100k, I only need to put $30k of my own. Typically at 7% interest rate.
Even if the fund returns 2.0x in 5 years / 15% IRR gross (very average gross performance), I would make $200k - $70k debt - 25k$ of interest = 105k$ net on $30 invested, so a 3x !
It’s just impossible to recreate these levels of returns on a PA without leverage.
it's not that hard to get leverage in the public markets...IBKR offers 6% interest rates on margin loans, can invest through LEAPS etc. obviously you get screwed in a downturn and you get margin called
Indeed I would rather not get margin called
Dude what kool aid are you drinking? A 2x in 5 years is top decile these days, and would amount to 25%-30% IRR as the fund doesn’t get deployed all at once on day 1. Most funds are lucky to get to a 2x over 10 years time, and those funds were deployed 10 years ago before AUM and competition doubled in this space. Do some research / DD and figure out if you still want to be in the PE space long term
Zero percent chance that happens. Also leverage ALWAYS looks good on the way up, that’s kind of the point of it. Final point is that if you’ve built a reasonable nest egg then you can get leverage on your PA
Megafund returns are closer to 8-10% these days. 15% would be a top decile MF.
Fun fact- there have been zero $10B+ PE funds in the history of the world that returned 2.0x DPI...
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