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Private Equity: If any, how much?

Clients often come to us with interest and questions about investing in private equity.

Sometimes it’s about putting money into a friend or family member’s new venture. Other times it’s a company they heard about somehow and have met the founders. Still others come with new ideas that they themselves plan to have some small involvement in. When clients think about this kind of investment decision we pride ourselves in providing knowledgeable and caring advice on how to make the decision, and be informed when the choice is made, to move into the risky space of private equity.

When it comes to private equity investments it is important to understand that, as a general rule, they are more risky than most other kinds of investments. In plain English we tell people: “what this means is: not only is it unlikely things will turn out as good as the story says, it is very possible that things will not turn out well (from an investment perspective).” Given the riskiness of private equity, it may come as a surprise that we are not against our clients making these types investments; and we do not take the view that it is our job to talk them out of it prior to making an assessment.

In assessing a private equity investment there is no one size fits all way to look at the situation.

In assessing a private equity investment there is no one size fits all way to look at the situation. Considerations must be made based on factors that are different for every investor. Some examples of the factors at play are: risk tolerance, current portfolio holdings, liquidity requirements, age, assets, liabilities, investment experience, personal interest in the investment, knowledge of the investment, many factors around the investment company, and more. In short, it is a complex decision.
Beyond the complexity of any individual private equity investment decision is the complexity of the approach we encourage. We have a few guidelines we ask clients to work with us on when looking at a private equity opportunity. These guidelines are:

  1. Take a portfolio view to your private equity investing.
  2. Invest only a portion of what you feel comfortable investing in each company so you have a reserve for future investments in the same company.
  3. Have fun! Invest in businesses you think it will be fun to be a part of and with which you would like to be associated.

So, what do these guidelines mean? Below are some brief thoughts on each one:


Take a portfolio view

We like to encourage a level of professionalism in our clients as they approach private equity investing. To this end we believe it is very important to consider how a private equity piece fits into their overall portfolio. Within this, it is then important to also see private equity as its own sub-portfolio. A common mistake made by inexperienced private equity investors is to overinvest in too few private equity investments. In general, we espouse a view that first a total amount available to invest in private equity needs to be identified, then there should be a plan to invest in multiple (ideally 10 or more) private equity investments.


Invest in tranches

After deciding that there is an appropriate place for private equity in a client’s portfolio we advise that each initial private equity investment amount should be less than the total amount that would be comfortable to invest. The reason for this is that often the company will need to come back to investors for more money prior to taking further steps forward. A new round of investments will be needed to reach the initial set of goals, a bridge amount will be needed to get to the next round, or some other issues will crop up. This guideline can greatly reduce investor expectations (and risk) on the front-end, and mitigate the stress of an underperforming investment in the future.


Have fun

As we have covered, private equity investing is risky. As such, we have found that it is good to be as passionate and “into” each private equity investment as possible. Among other things, a high interest level is a good indicator of knowledge. Also, as an investor in a company you are a spokesperson for the company and can affect the outcome, so it is best to be a believer yourself. Believing in a company also helps avoid some of the common misgivings that arise if things don’t work out well for the investment – it was worth the try!

Typical investment advisors wouldn’t come near private equity and will go to great lengths to talk clients out of it, or at least take all the control out the client’s hands by forcing them into a private equity fund. Our view is that private equity can have a place in a portfolio and that a client should be an integral part in determining how to fit it into their investments. More importantly, we have found that by being open to a client’s desire to invest in private equity our relationship is deepened. We are much better able to help and understand our client’s wishes when they feel the door is open for them to share their thoughts with us, safe from being talked down to or otherwise marginalized. We often see people who feel like they are fighting with their advisor rather than teaming up with them when it comes to the subject of private equity. We reject that version of things and are here to serve.

As Seen In

“Relating to our personal finances can be very destabilizing. Feelings of peace and confidence are often masked by obsession, uncertainty or fear. Most people have developed strong, habitual patterns with respect to their financial lives, including taxes. Mindfulness cuts through these patterns and can allow us to see money matters more clearly, and accomplish positive change.”

Solomon Halpern

New York Times logo for quote
The New York Times

“Mindfulness allows our personal experiences, narratives, and emotions to become valuable tools rather than distractions to our financial planning.”

Solomon Halpern

Mindful Magazine M logo

“There seems to be a lack of synchronicity, a separation from the financial self.”

Solomon Halpern

Wall St Daily


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