Investing in Private Equity

Hi everyone,

To give you some background, I recently inherited around $2.0 million from my passed grandfather. I am looking into investing this money, but am rather skeptical of the market at the moment, and bond yields are very low. Of course, I will still diversify some money into those two, but I would like to look elsewhere as well.

I would like to invest around $500,000 - $1,000,000 in private equity. I think a Fund of Funds is my best option due to the diversification they provide, in addition to me not being an accredited investor. That leads me to my next question, what is the accreditation requirement for investing in Fund of Funds? I am also open to investing in a a good PE firm that has diversified investments, but I have had little luck in finding any MM firms that take such small investment amounts.

**Main questions:**
What is the accreditation requirement for investing in FoF's? Does anyone know of any good Private Equity FoF's to invest in? What is their minimum amount? What are generally returns for PE FoF's? What are fee structures like?

Thanks a lot everyone. Any advice is appreciated!

Private Equity Interview Course

  • 2,447 questions - 203 PE funds. Crowdsourced from 750k+ members
  • 9 Detailed LBO Modeling Tests and 15+ hours of video solutions.
  • Trusted by over 1,000 aspiring private equity professionals just like you.

Comments (59)

Apr 12, 2017 - 11:34am

There aren't different levels mandated by the government, it is a binary you either are or aren't. Now individual firms can put what ever restrictions they like on incoming investment. With your capital pool you can find a firm that will likely take your money, however I would caution you against this. With your capital size you would be far better off looking at real estate than an LP position in a fund that will likely put you absolutely dead last in the priority pecking order. With real estate you can gain experience and even if you fuck up it isn't likely you will crater your entire capital base.

Follow the shit your fellow monkeys say @shitWSOsays

Life is hard, it's even harder when you're stupid - John Wayne

  • 1
  • 1
Apr 7, 2017 - 4:52pm

PE groups will have a minimum investment requirement, which you might not meet. Your best bet might be to just reach out to the investor inquiries email for various investment groups. While you may strike out with the well known funds, if you're in a major city there will be smaller groups that cater to individual investors and as such will have lower minimum investments.

Apr 7, 2017 - 7:39pm

Gosh, why not do something interesting? Go buy a company on all leverage knowing you have cash at home if things don't work out. Go buy a heliski operation. What's your day job? You've got the fckn golden ticket and you're trying to achieve a boring ass lp position? ugh

Global buyer of highly distressed industrial companies. Pays Finder Fees Criteria = $50 - $500M revenues. Highly distressed industrial. Limited Reps and Warranties. Can close in 1-2 weeks.
  • 3
Learn More

300+ video lessons across 6 modeling courses taught by elite practitioners at the top investment banks and private equity funds -- Excel Modeling -- Financial Statement Modeling -- M&A Modeling -- LBO Modeling -- DCF and Valuation Modeling -- ALL INCLUDED + 2 Huge Bonuses.

Learn more
Apr 7, 2017 - 7:48pm

I don't get it either man. Kids that are rich and still go anywhere near IB are probably born on the lower end of their family's gene pool. It's a fucking structured ass world where the most mundane things are given a no for absolutely no personal reason at all. Go do something where the nos are just as momentous as the yes'. I don't even know if what I said makes sense... this is just how fucking confused I am atm.

Sep 11, 2020 - 12:25pm

I'm equally confused. He reminds me of someone I know who wants to work in a HF even though his parents have a 9-figure net worth...

Apr 7, 2017 - 8:03pm

If it were my money, I'd focus on RE. IMO you can get a decent range of levered and unleavened returns, clip a great current yield to maintain a comfortable lifestyle, while maintaining ownership of hard assets. I wouldn't waste my time with any sort of FoFs, it's a dying asset class. I also wouldn't waste my time trying to be a direct LP. With that little money, you're looking at small (risky) lower MM PE, not to mention your money is locked up for almost a decade and why would you want to be an LP when you can exert more control over your own investments without too much brain damage in RE. Note - I don't even work in RE so this isn't an endorsement, just what I would do.

Best Response
Apr 8, 2017 - 12:27pm
MidtownParkAve:

unleavened returns

Unleavened returns

"Son, life is hard. But it's harder if you're stupid." - my dad
  • 50
Apr 12, 2017 - 5:43am

I see the Lord, I upvote.

GoldenCinderblock: "I keep spending all my money on exotic fish so my armor sucks. Is it possible to romance multiple females? I got with the blue chick so far but I am also interested in the electronic chick and the face mask chick."
  • 1
Apr 12, 2017 - 4:49pm

Extremely well-timed, since Passover is this week :)

Thanks, let me know if you ever need an introduction in the industry.
  • 1
Apr 12, 2017 - 1:51am

find a wealth manager that you can trust and give him $1mm+ to manage and just forget about it. Don't put half your $2mm inheritance into one f*cking asset class. Actually, if you just tossed $1mm into a 30-year treasury, you could give yourself a ~$50k annual pre-tax salary for the next 30 years for doing nothing.

As others have said, you just got a golden ticket - there are so many better things you can be spending your time thinking about.

Apr 12, 2017 - 2:32am

The asset manager I work for has a pretty famous FoF business. It varies by Fund, but we have some that have mutual-class type shares with monthly liquidity (mainly invested in short-term funds) and then FoF's with 25% gates per quarter and 90 day notice, which essentially means around a year or so to get your money back. The smallest minimum investment in of our mutual-type fund types is $10,000 (it has a lot of capital in it), while we tailor bespoke options for clients willing to invest $20mm to $50mm minimum (also has to be an indication that the money will grow).

I haven't actually worked on our PE FoF(s); but I would recommend looking into a financial advisor that can hook you into HNW distribution platforms, which offer FoF type products and manager selection. Goldman Sachs' AIMS is a good example - it's an investment management division that evaluates other managers. JP Morgan likely has a similar alternative. You might have some difficulty because you are at the very bottom of HNW if at all; but an aggressive financial advisor might hook you up.

Also, FoF is a dying business. In a era of lowering fees, it's very hard to justify fees on top of fees. Keep that in mind as the underlying returns will have to be very strong.

Apr 13, 2017 - 2:26pm

The most "exclusive" range he falls in is UBS Global Wealth Management who's minimum requirements at $2 million. I would put all my money on them.

We're not lawyers. We're investment bankers. We didn't go to Harvard. We Went to Wharton!
Apr 12, 2017 - 6:15am

To invest in PE, often the minimum requirement is to become an accredited investor. Next, in order to gain access to most funds, you may want to poke around and let people working in the PE world know that you're willing to invest at least 1 million USD. Once a firm open's their doors, you're game. Also you'll have to do your research on whether fund gains are not offset by taxes. FoF usually aren't the best option for this.

I received a windfall of close to $5 million when I sold my startup. I invested 1m USD in my current firm's own fund, invested another 1m USD in a high volatility HF (where the requirement was 1 m USD minimum, invested 1m USD in a value-investing HF, and the rest parked away in various tax havens, which I can summon up when I feel like starting up again.

Do not go for the big banks! You're HNW is too low for them to treat you seriously as a client. Besides you're way below the threshold of these banks - JPM requires $20 million, I think. I personally use a Swiss private bank myself (Pictet/Lombard Odier/Julius Baer/Vontobel, etc.)

GoldenCinderblock: "I keep spending all my money on exotic fish so my armor sucks. Is it possible to romance multiple females? I got with the blue chick so far but I am also interested in the electronic chick and the face mask chick."
  • 2
Apr 12, 2017 - 8:43am

what was your startup?

You killed the Greece spread goes up, spread goes down, from Wall Street they all play like a freak, Goldman Sachs 'o beat.
Apr 12, 2017 - 1:54pm

Dronetech.

GoldenCinderblock: "I keep spending all my money on exotic fish so my armor sucks. Is it possible to romance multiple females? I got with the blue chick so far but I am also interested in the electronic chick and the face mask chick."
  • 1
Apr 12, 2017 - 10:42pm

Credibility. I'm not treated equivalent to my coding buddies, even though I can code reasonably well. And I wasn't given enough respect as a 19-22 y/o "Business Development Director", even though I was the one handling that side of the business completely. Also, I needed a job just to show that I was employable and can work in a corporate setting. And yeah. we hated working with our industry partners in that space.

Startup culture is totally different, especially if it's really lean and tech focused. You can have a solid product and do a strong exit (like we did), in spite of piss poor implementation and logistics. After all, the game is just about trying to find a buyer for your company then. Obviously the situation becomes much different when you've achieved critical mass (which was not applicable in our case anyway).

GoldenCinderblock: "I keep spending all my money on exotic fish so my armor sucks. Is it possible to romance multiple females? I got with the blue chick so far but I am also interested in the electronic chick and the face mask chick."
Apr 13, 2017 - 9:38am

$5 million is too low a commitment when you want to get back into the game, actually. But my buddies and I are planning on pooling, in which case it would be okay. We want our next thing to be devoid of any VC funding, until MAYBE late stage - I could write a blog post on the reasons for this soon, when I'm free.
We were lucky in that we didn't have a VC investor (a top VC actually poked fun at me playfully in a conference due to my disdain for IPO exits over M&A exits). The investor wasn't more concerned about returns, than he was about seeing some cool "Dronetech" shit (This was way back in 2009-10, when drones hadn't caught much).

GoldenCinderblock: "I keep spending all my money on exotic fish so my armor sucks. Is it possible to romance multiple females? I got with the blue chick so far but I am also interested in the electronic chick and the face mask chick."
Apr 15, 2017 - 4:20pm

I thought you owned all of it.

GoldenCinderblock: "I keep spending all my money on exotic fish so my armor sucks. Is it possible to romance multiple females? I got with the blue chick so far but I am also interested in the electronic chick and the face mask chick."
Apr 15, 2017 - 4:22pm

You ought to ask the FSB then.

GoldenCinderblock: "I keep spending all my money on exotic fish so my armor sucks. Is it possible to romance multiple females? I got with the blue chick so far but I am also interested in the electronic chick and the face mask chick."
Apr 12, 2017 - 2:09pm
Sil:

You sold Qatalyst for $5 million? I hate to break it to you, Frank, but you got ripped off.


LOL. I screwed up, I know. Shouldn't have let Boutros handle the exit.
GoldenCinderblock: "I keep spending all my money on exotic fish so my armor sucks. Is it possible to romance multiple females? I got with the blue chick so far but I am also interested in the electronic chick and the face mask chick."
  • 2
Apr 12, 2017 - 9:22am

Agree with many of the points made above however there are some other options for accessing PE; unfortunately there are restrictions for US citizens on these investments that you may need to circumnavigate, but an option nonetheless.

There are several closed-ended investment trusts listed on the LSE which offer access to a PE FoF portfolio, as well as some direct investment exposure. These vehicles are typically established either to offer PE firms access to a proprietary capital source which they can cornerstone their fundraising with (Apax Global Alpha, HG Capital Trust, ICG Enterprise Trust, Electra Private Equity) or to allow retail investors access to a restricted asset class with liquidity provided by virtue of the exchange traded nature of the vehicles (Standard Life PE, F&C PE Trust, Princess Private Equity).

These companies are all strong performers in terms of NAV growth and provide a healthy dividend (c6%) usually on a quarterly basis.

  • 1
Apr 12, 2017 - 1:35pm

Don't do that. Invest in RE instead, with 2 mil, you should be able to get annual cash flows (minimal taxes) between 200k-300k. You're set for life, don't be greedy about it; I don't say this with moral high ground bs, but that could certainly cause you to bleed assets if you're not careful versus these guaranteed, safe returns

Apr 12, 2017 - 2:35pm

"guaranteed, safe returns"? where do I sign?

In all seriousness though, that's the point I'm trying to get to. To have enough NW/Liq to just do my own deals and you're already there. You'll be able to invest as an LP to grow your capital base further and eventually reach a point where you can own several properties, properly levered, on your own account and collect your cash while you do whatever the hell you want.

Apr 13, 2017 - 3:46pm

Haha that's a fair point. Let me rephrase: if you've found a decent investment with lower turnover (and you could certainly also bring in a property manager if you don't mind the 10% haircut, but it may save you headaches and time), you can just clip these coupons for the rest of your life and do something you love. Also brosephstalin, that's the dream, and I hope you get there. I'm entry level, but hoping to be able to have that sort of freedom through RE investments within 15 years

Apr 12, 2017 - 2:19pm

I had a similar situation happen to me a number of years ago. Was fortunate to have smart family members and great co-workers/mentors to help me make smart decision. If you would like to discuss feel free to PM me.

"If you want to succeed in this life, you need to understand that duty comes before rights and that responsibility precedes opportunity."
Apr 12, 2017 - 5:30pm

You actually got people to advertise their firms on WSO. Respect

Absolute truths don't exist... celebrated opinions do.
  • 1
Apr 13, 2017 - 9:40am

Investing in FoFs with a net worth of 2 mil is a poor idea.

I'm surprised he isn't checking out real estate. Maybe he should check out heister 's post. Truth or not, it's still quite good.

GoldenCinderblock: "I keep spending all my money on exotic fish so my armor sucks. Is it possible to romance multiple females? I got with the blue chick so far but I am also interested in the electronic chick and the face mask chick."
Apr 13, 2017 - 6:01pm

nobody urges you to invest the money now. just keep it on the bank for a while, find a job which makes you happy. in some few years invest your money peu un peu in different assets such as RE, ETS, whatever. i would be very careful with investing in fof esp as your profiles mentions intern. get some investment experience (through working) and you would be wiser in investing

Apr 17, 2017 - 3:42pm

You're a millionaire on paper, which ought be sufficient to pass the accredited investor hurdle I believe. Of course, any sort of investment of this nature should be undertaken with competent legal counsel.

The issue you're really going to contend with is that the world is awash in money thanks to years of easy interest rates, and you'll be competing with other people for the limited number of seats that a PE fund has to offer. PE as an asset class, among established managers, is like a game of musical chairs in that a limited number of spots are earmarked for the most strategically important prospective LPs. For someone like you, you are going to be picked last in the lineup, if at all, with reasoning below:

In any PE fund worth its salt, the small number of ~$2mm positions available are given to FoF managers. Any investing on the $1-5mm scale done by individuals and their trusts tends to be done by "Friends and Family" - think the managers' sons' trust, or the trust of the CEO of one of their portfolio companies. It is relatively rare to see a commitment like yours materializing.

You've got to consider this: to any manager worth his salt, their fund is oversubscribed. They're not eager to sop up more money, they're trying to figure out which prospective LPs to admit to the fund, and which LPs to turn away. What's the benefit of giving a seat to some rando like you with no potential for upside, when they could instead give the $2mm seat to a new FoF manager that may someday grow into a $30mm investor? Or give it to the CEO of one of the companies they just bought?

You are (justifiably) unaware of the calculus underlying LP admissions, however the business of deciding who to accept as an LP is just as political as any other calculation made by humans. Fact of the matter is that you are an outsider trying to invest a paltry sum, competing with others who have either the potential to become a strategically valuable relationship to any potential manager, or with others who are already buddy buddy with the manager. This is to ignore the broader point that ALL of the $1-10m investors are of a different category of importance than large, institutional managers, all of whom the managers of the world are eager to curry favor with.

As others have noted, $2mm will put you dead last at the bargaining table when it comes to negotiating the terms of your investment. Further, any returns you hope to get on your investment would likely be frittered away on the legal fees required up front by any competent lawyer, who would be responsible for negotiating the terms of your investment.

I would not enter such a structured and zero-sum game as the internal politics of LBOs if I were in your position, unless you are personally involved somehow with the manager, and can therefore trust that they'll advocate your best interests.

Further, I would be skeptical of any manager that seems eager to take your $2mm. Remember this: before any interests are offered, the manager knows how much money he's targeting for his fund. Anyone who is eager to sop up a $2mm commitment from an unheard of investor is either extremely greedy, or lacks market interest in his "investment expertise". Either quality would make me wary.

Array

Apr 17, 2017 - 3:52pm

Can someone explain this to me - Investing in a PE fund (Originally Posted: 03/02/2010)

http://www.pehub.com/64545/mexican-pensions-to-buy-200m-in-pe-fund/

In the article it says

"Roughly half of the country's private pension funds, known as Afores, will be involved in the transaction that should be listed on the Mexican stock exchange in the coming days, said Luis Alberto Harvey, managing director of Nexxus Capital, which will receive the funding."

How does investing in a PE fund resulting in listing on a stock exchange? Forgive me for me dumbness...thanks!

Apr 17, 2017 - 3:53pm

I didn't read the article but by your quote it sounds like pension funds are investing in a PE fund that is going public - a lot of institutional funds get the privilage to invest in IPOs at the IPO price and not the market price, that is why these pension funds are investing in this PE fund

Sep 18, 2018 - 6:00am

Private Equity and other alternative investments are one of the most attractive asset classes for HNW individuals. As mentioned in some of the comments, to invest in the best performing Private Equity funds you need far more than US$2 million to access such investments. In your case you will be able to invest in mid-cap PE funds and if you do not know anyone in the fund manager you might get worse terms than the other bigger investors sitting at the table. Furthermore you won't be able to differentiate your portfolio within alternatives. However, to tackle this issue, a number of online platform have been developed, aiming to 'democratize' alternative investments by offering the world's best PE funds for a smaller ticket of entrance. This allows you to access historical top quartile funds for a smaller minimum threshold. In the UK, an example of such platform is 'AtomInvest'. To invest you still need to be an accredited investor but you will be able to differentiate your portfolio and invest in PE firms, which normally would be impossible to access.

Start Discussion

Total Avg Compensation

June 2021 Private Equity

  • Principal (7) $694
  • Director/MD (18) $575
  • Vice President (65) $371
  • 3rd+ Year Associate (66) $270
  • 2nd Year Associate (133) $256
  • 1st Year Associate (273) $223
  • 3rd+ Year Analyst (24) $164
  • 2nd Year Analyst (60) $136
  • 1st Year Analyst (177) $118
  • Intern/Summer Associate (19) $70
  • Intern/Summer Analyst (206) $59