Low fee Private Equity / Alternative Investing Approach

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investoso
Posts: 1
Joined: Wed Sep 11, 2019 5:47 pm

Low fee Private Equity / Alternative Investing Approach

Post by investoso » Wed Sep 11, 2019 6:05 pm

I’m looking for the best way to invest in alternative investments (i.e. private equity, real estate, etc.). Details:

I recently sold my software business and have mid single digits of millions of dollars of after-tax proceeds to invest. I am a believer in passive, low-fee investing, so I put ⅔ of my proceeds in Betterment to have the majority in liquid, public assets.

My business was financed by private equity firms, so I have direct exposure to how PE outperforms public markets by a large margin. The Economist just mentioned that PE outperformed public by on average over 6% per year between 1997 and 2006 (this is a big sub-topic that I don’t intend to fully get into here; for more info see here and here among others).

While I had some opportunities to invest directly in the funds of my investors, given the high minimums I did not think that was an intelligent, well diversified approach. I then met a number of registered investment advisors (RIAs) from both independent and big firms. They all wanted to charge huge fees (1% or greater) for services I don’t need. I just wanted access to good, diversified PE portfolios. I asked if I could even pay their fees on my PE investments but do my public investments through Betterment. They refused saying they needed to manage everything (and charge fees on everything).

I looked into a lot of the new online alternative investment offerings: YieldStreet, Cadre, Fundrise, etc. With all of them I could not get a real grasp on just what I was investing in, what the full fee structure was, etc. And ultimately I want to trust known managers with proven track records (i.e. Blackstone, KKR, TPG, etc.) with wide diversification rather than put significant capital at risk with relative unknowns.

So does anyone know of a good, low fee (i.e. <= 50 bps) way for accredited investors who are not super-wealthy to invest in top-level private equity funds (both business and real estate)? It seems to me that by know there should be a Betterment / Wealthfront / Robo-Advisor for Private Equity / Alternatives, i.e.: most interaction is online (maybe some chat or brief calls); there is a good, automated allocation/diversification methodology; good exposure to quality managers; and it is all done on a low-fee basis. PE is a fantastic and growing asset class (growing much faster than public). There needs to be a way for investors beyond institutional and the ultra-rich to properly allocate here.

Any ideas here? Is this something that others are looking for?

Stick5vw
Posts: 66
Joined: Sun Dec 18, 2016 6:46 am

Re: Low fee Private Equity / Alternative Investing Approach

Post by Stick5vw » Wed Sep 11, 2019 8:40 pm

I would be interested in this is as well.

There is a company in SF named CircleUp that seemed interesting. Helps link consumer/retail companies with VC but to invest one needs to be an “accredited investor”. I think you would probably qualify. I am not sure what the minimum ticket was but if memory serves at least $50k

Prettyfrtnt
Posts: 83
Joined: Fri Aug 23, 2019 6:28 pm

Re: Low fee Private Equity / Alternative Investing Approach

Post by Prettyfrtnt » Wed Sep 11, 2019 11:45 pm

investoso wrote:
Wed Sep 11, 2019 6:05 pm
I’m looking for the best way to invest in alternative investments (i.e. private equity, real estate, etc.). Details:

I recently sold my software business and have mid single digits of millions of dollars of after-tax proceeds to invest. I am a believer in passive, low-fee investing, so I put ⅔ of my proceeds in Betterment to have the majority in liquid, public assets.

My business was financed by private equity firms, so I have direct exposure to how PE outperforms public markets by a large margin. The Economist just mentioned that PE outperformed public by on average over 6% per year between 1997 and 2006 (this is a big sub-topic that I don’t intend to fully get into here; for more info see here and here among others).

While I had some opportunities to invest directly in the funds of my investors, given the high minimums I did not think that was an intelligent, well diversified approach. I then met a number of registered investment advisors (RIAs) from both independent and big firms. They all wanted to charge huge fees (1% or greater) for services I don’t need. I just wanted access to good, diversified PE portfolios. I asked if I could even pay their fees on my PE investments but do my public investments through Betterment. They refused saying they needed to manage everything (and charge fees on everything).

I looked into a lot of the new online alternative investment offerings: YieldStreet, Cadre, Fundrise, etc. With all of them I could not get a real grasp on just what I was investing in, what the full fee structure was, etc. And ultimately I want to trust known managers with proven track records (i.e. Blackstone, KKR, TPG, etc.) with wide diversification rather than put significant capital at risk with relative unknowns.

So does anyone know of a good, low fee (i.e. <= 50 bps) way for accredited investors who are not super-wealthy to invest in top-level private equity funds (both business and real estate)? It seems to me that by know there should be a Betterment / Wealthfront / Robo-Advisor for Private Equity / Alternatives, i.e.: most interaction is online (maybe some chat or brief calls); there is a good, automated allocation/diversification methodology; good exposure to quality managers; and it is all done on a low-fee basis. PE is a fantastic and growing asset class (growing much faster than public). There needs to be a way for investors beyond institutional and the ultra-rich to properly allocate here.

Any ideas here? Is this something that others are looking for?
Looking for a unicorn... if you find it pls dm me. Most private equity investments are more powerful but hard to find and not very diversified. I choose to hold sharktank.a class shares after liquidating Berkshire a holdings.

The private stuff I have that has yielded incredibly has been privileged stuff.

Most normal people are left out here... if only bogle was still here to fix this.

Time for a madoff.a shares joke.

we1
Posts: 14
Joined: Tue Jul 30, 2019 12:24 am

Re: Low fee Private Equity / Alternative Investing Approach

Post by we1 » Thu Sep 12, 2019 12:56 am

I have looked for something similar for business PE. Closest I've found is PE fund-of-fund managers such as HarbourVest, Pantheon, Partners Group, Goldman, JPM, Adams Street, etc. All of them have fund-of-fund products where they're investing in dozens of underlying PE managers on your behalf. Great diversification, you won't hit a home-run but you should do a little better than the overall PE asset class returns. You will be paying fees on top of the underlying manager fees. The firms don't really market to HNW, but I think you can get into some of them with a $500k minimum. Partners is probably the most retail-friendly. I think they have a mutual fund type product, but only if you reside outside the US.

BTW I agree with your premise that it's an attractive asset class for a bunch of reasons.

Valuethinker
Posts: 38611
Joined: Fri May 11, 2007 11:07 am

Re: Low fee Private Equity / Alternative Investing Approach

Post by Valuethinker » Thu Sep 12, 2019 3:54 am

I suspect US PFIC rules would make the London Listed PE vehicles ("Investment Trusts") like HG Capital and Pantheon impossible?

There is an SEC classification something like "accredited investor" ? that would allow you to access deals directly?

There's also a debt fund, US listed, that invests in Bain Capital deal debt? A few leveraged loan funds out there that in theory will give you quasi-equity returns.

Worth reading David Swensen on PE (LBO) & VC funds (technically both are "private equity" but what they invest in is very different).

The bottom line (for endowments & individuals) is that if you can't pick the right managers, the asset class is not attractive.

BTW KKR has had some pretty mediocre returns. When they floated that fund in Amsterdam, the layering of fees on the investments (on behalf of the fund manager) was impressive.

Brookfield also has some quasi private equity entities that are US listed - spin outs from Brookfield AM.

EDIT

I found this list.

https://www.etf.com/channels/private-equity-etfs

Expense ratios look really high. Looking at PSP (Invesco) 1.78% ER?

PSP Top 10 Holdings [View All]
AIM Treasurers Series Funds Inc Premier US Government Money Portfolio Institutional5.39%
3i Group plc5.37%
Melrose Industries PLC5.30%
IAC/InterActiveCorp.5.23%
Partners Group Holding AG4.95%
KKR & Co. Inc. Class A4.09%
Blackstone Group Inc. Class A4.05%
Carlyle Group L.P.2.90%
Apollo Global Management Inc. Class A2.83%
Ares Capital Corporation2.82%
Total Top 10 Weighting42.92%

You could definitely synthesis that yourself. It appears that 3i (London listed PE firm) does not trigger PFIC rules? (there's also a 3i listed infrastructure fund - that might well do so).

https://www.etf.com/BUY#overview

I quite like the strategy of this one - pick stocks that a PE firm would buy. Berkshire Hathaway in fact does that - but then does not load its investors with the huge fees PE fund management firms are paid. Also the size of BH now means they can only hunt very big game.

https://www.etf.com/BIZD#fit

TPG, Apollo, KKR - they are all in the top 10 holdings list

Softbank is of course a Venture Capital company, depending upon what you think of the portfolio. So to to an extent is Baidu? (one of the big Chinese software/ internet stocks, cannot remember which one).

rsc601
Posts: 72
Joined: Mon Aug 20, 2007 1:39 pm
Location: Orange County, CA

Re: Low fee Private Equity / Alternative Investing Approach

Post by rsc601 » Thu Sep 12, 2019 11:22 pm

I was searching for an entry into real estate private equity and came upon similar platforms as you - Crowdstreet, Fundrise, etc. Then you hear about RealtyShares going under and it makes you think twice.

Fortunately, I stumbled upon Ian Ippolito’s The Real Estate Crowdfunding Review where he compares each of the platforms. https://www.therealestatecrowdfundingreview.com/

Sign up to join the Private Investor Club. It’s free. You have to go through a verification process to attest that you’re not a sponsor that’s going to talk up your product/fund. The level of due diligence in there is astounding, at least for a novice like me. You’ll notice that, like this website, there are no ads as he takes no money or special deals from any sponsors.

AHTFY
Posts: 55
Joined: Mon Jul 23, 2018 2:33 pm

Re: Low fee Private Equity / Alternative Investing Approach

Post by AHTFY » Thu Sep 12, 2019 11:41 pm

rsc601 wrote:
Thu Sep 12, 2019 11:22 pm
I was searching for an entry into real estate private equity and came upon similar platforms as you - Crowdstreet, Fundrise, etc. Then you hear about RealtyShares going under and it makes you think twice.

Fortunately, I stumbled upon Ian Ippolito’s The Real Estate Crowdfunding Review where he compares each of the platforms. https://www.therealestatecrowdfundingreview.com/

Sign up to join the Private Investor Club. It’s free. You have to go through a verification process to attest that you’re not a sponsor that’s going to talk up your product/fund. The level of due diligence in there is astounding, at least for a novice like me. You’ll notice that, like this website, there are no ads as he takes no money or special deals from any sponsors.
Sounds too complicated to me. If you have enough money to put to work, it might be good. But not for us small timers. I just want a good, inexpensive private equity ETF or mutual fund. I'm sure it will happen sometime.

DosCommas
Posts: 16
Joined: Sun Jan 27, 2019 7:11 pm

Re: Low fee Private Equity / Alternative Investing Approach

Post by DosCommas » Fri Sep 13, 2019 12:12 am

I would consider the possibility that historical PE outperformance has led to performance chasing and with larger deals required to put so much capital to work returns may be headed lower for awhile. Not saying it isn’t a worthwhile asset class for your portfolio, just get yourself ready in case past performance doesn’t predict future returns. These funds are highly illiquid so you can’t change your mind so easily.

anoop
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Joined: Tue Mar 04, 2014 1:33 am

Re: Low fee Private Equity / Alternative Investing Approach

Post by anoop » Fri Sep 13, 2019 12:26 am

I don't know that there'd be anything low fee and they are typically high risk, usually requiring the investor to sign something saying they are an "accredited investor". Google that term and you will find a lot of information. It's a very unboglehead way of investing, though. And you have to really be wary of scams.

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Nate79
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Location: Delaware

Re: Low fee Private Equity / Alternative Investing Approach

Post by Nate79 » Fri Sep 13, 2019 6:53 am

I've heard the White Coat investor advertise some real estate investing opportunities on his podcast. You might check out his site and see if he has any info on it.

rsc601
Posts: 72
Joined: Mon Aug 20, 2007 1:39 pm
Location: Orange County, CA

Re: Low fee Private Equity / Alternative Investing Approach

Post by rsc601 » Fri Sep 13, 2019 5:08 pm

Nate79 wrote:
Fri Sep 13, 2019 6:53 am
I've heard the White Coat investor advertise some real estate investing opportunities on his podcast. You might check out his site and see if he has any info on it.
Here are a few links from WCI including a very recent post August 26, 2019. The last link also references Ian Ippolito's The Real Estate Crowdfunding Review as a great resource for due diligence.

https://www.whitecoatinvestor.com/how-s ... al-estate/

https://www.whitecoatinvestor.com/recom ... companies/

https://www.whitecoatinvestor.com/how-w ... al-estate/

MichCPA
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Joined: Fri Jul 06, 2018 9:06 pm

Re: Low fee Private Equity / Alternative Investing Approach

Post by MichCPA » Fri Sep 13, 2019 5:17 pm

Be careful what you wish for. I work at a PE owned firm and our leverage ratio is like 8.1 so you would be diving head first into a pool of debt ridden companies. Not a good yield chasing strategy at all.

MotoTrojan
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Re: Low fee Private Equity / Alternative Investing Approach

Post by MotoTrojan » Fri Sep 13, 2019 6:50 pm

I’d get that money out of Betterment personally.

2commaBH
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Location: SFBA

Re: Low fee Private Equity / Alternative Investing Approach

Post by 2commaBH » Fri Sep 13, 2019 7:27 pm

I have some experience in the PE space. IMO it is a difficult space to get exposure to in a way that doesn't involve a substantial commitment and privileged access. Liquid alternatives (which one person mentioned above) have been poor substitutes to date for traditional PE. If you wait 5 years, my bet is that many of the larger shops (BX, KKR, etc) will have decent but not extraordinary liquid alt options. But at the moment the "best" option I can see for "regular" QPs and AIs would be to purchase stock in the large PE managers like KKR, Carlyle, etc (particularly as they convert away from LP structures that generate K-1s) and hope for secondary appreciation as these managers clip carry. But as someone cautioned earlier, this cycle may be a little long in the tooth (though I think the excellent PE managers actually perform better in a downturn).

In my opinion, traditional PE (as distinguished from PE-RE) is an excellent asset class for those that can handle the liquidity, fees and minimums, as top managers can generate 20+ IRRs and do so in a somewhat non-correlated way to liquid assets.

A number of people have identified individual asset RE platforms, and there are likewise individual asset VC platforms such as Equity Zen that seem interesting but risky. I haven't yet seen something similar for PE (the scale likely precludes this).

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