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Originally Posted by Profane Kahuna
Great perspective.
What is your advisor's minimum for the PE deals? Half a mil? 1 mil?
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PE and PC (private credit) have two types of commitments: an upfront commitment (funds they need right now to get you started), plus a total commitment that will be 'called' within the first 1-3 years of investmnent. It usually takes a couple years for the full commitment to be fully realized (especially in PE) because the PE firms first raise their capital, and then begin their search for companies to acquire. Thus, they don't need the full value of your total investment to be sent to them immediately; they will take an upfront investment and then issue 'capital calls' periodically, as they begin to acquire target companies.
In other words, you're saying, "OK, I am going to commit to $750K total" (or whatever total you're OK with). They then will ask for, say, $200K upfront and then over the next 12-24 months there will be capital calls in tranches which you must fund. In other words you don't need all $750K now...you fund the commitment with $200K, and then every so often, you're asked for more funds until the full commitment is met.
IIRC this takes much longer with PE than with PC.
The big drawback with PE is the long return horizon. Years 1-2 are spent identifying target companies for acquisition or investment, and executing those transactions. Years 3-7 are spent transforming those companies to generate more value. Then the 'harvesting' in years 8-10 are when you see returns. For the first few years, the value of your investment is reported as flat. Then -- hopefully -- you see some significantly high returns. PC sees returns mucn more quickly because your money is invested and then almost immediately lent out in the private credit markets.
I've also experienced how PE works on the other side — i.e. how PE companies go about investing, acquiring, transforming, and then divesting companies that they target as opportunities.
We invested in a series of different PE funds that, in earlier 'vintages' run by the same firms, ended up with IRRs in the 20-25% range. We are only 3 years in to this round so I haven't a clue how things will turn out.
I believe the minimum investment IIRC was $500K.
Again, PE and PC are absolutely not for everyone. I would say that only a small percentage of investors with unique needs should consider them. For example, you need to be able to not touch PE money for almost a decade. And the risks are higher than traditional equities or bond investments. For these reasons, you don't see the Fidelities or Schwabs of this world offering these investment options. Will it prove to be a wise decision for me and my family? Time will tell...