I recently ran into this article on The New York Times Dealbook, where K.K.R.’s newest investment product, which caters to investors that are looking to commit a lower than average amount of capital, is described.
K.K.R. is working with another firm to allow investors to commit a minimum of just $10,000 for exposure to its private equity funds, according to a filing with regulators on Thursday. The new investment product, subject to approval by the Securities and Exchange Commission, would be the first time K.K.R. had taken smaller investors into its core business of buyouts.
A legal obstacle stems from the Investment Company Act of 1940, which has had the effect of limiting individual private equity investors to those who already have at least $5 million in investments. Carlyle and K.K.R., however, are trying to appeal to “accredited” investors, whose net worth exceeds $1 million, not including their primary home, a low bar for the industry.
What do you think of the latest investment product of the Private Equity firms? Do you see this working out or as a fad that will blow over?
I like it. If they can get over the regulatory hurdles, PE funds can be a great addition to a retail investor's portfolio. Historical data has shown that private equity funds tend to have diversification benefits against public equities (albeit not a negative correlation, but still below 0.50) and have even outperformed the S&P consistently (even after factoring in survivorship bias).
I don't work in PE myself, but I see the act of aggregating small, individual investors being a burdensome task that will have high administrative costs. With that being said, I'd like to hear the opinions of actual PE professionals. If these costs can be limited and/or offset by significant amounts of new capital being raised, I think this may just work out.
Very cool. I think this a trend for a lot of different invest vehicles. You look at peer to peer lending, alternative platforms, and syndicates for ventures popping up left and right. In five years, it will be very possible as a novice investor to have exposure to a number of different alternatives.
The hardest part for these asset managers is, how do they manage their liquidity? So many of these underlying assets won't pay out within 1-3 years.
@CorpFinanceGuy Agreed. They will have to implement a more favorable lock-up period otherwise managing all those redemptions will be a nightmare.
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