Private Equity: Silver Lake Partners - Fund VII

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
James123
Posts: 43
Joined: Fri Aug 17, 2007 11:29 pm

Private Equity: Silver Lake Partners - Fund VII

Post by James123 »

Hi,
Most my portfolio has been passively invested in Index funds. Recently my banker suggested investing in Private Equity: Silver Lake Partners - Fund VII. On google search the shop seems to have good reputation has given good returns.
I will greatly appreciate input from people who have experience in investing in private equity. With the market downturn, there might be opportunities for private equity fund that are not open to retail investors. I will also appreciate input from people who might have experience with Silver lake partners.
Warm regards.
Warm regards, | James
livesoft
Posts: 80325
Joined: Thu Mar 01, 2007 8:00 pm

Re: Private Equity: Silver Lake Partners - Fund VII

Post by livesoft »

Don't know anything about it, but the name sounds like a new development that some of my rich banker friends are building nice mansions on 5 acre lots located in the mountains of Idaho on a nice lake.
Wiki This signature message sponsored by sscritic: Learn to fish.
Topic Author
James123
Posts: 43
Joined: Fri Aug 17, 2007 11:29 pm

Re: Private Equity: Silver Lake Partners - Fund VII

Post by James123 »

Don't know anything about it, but the name sounds like a new development that some of my rich banker friends are building nice mansions on 5 acre lots located in the mountains of Idaho on a nice lake.
It was actually founded in 1999. Like you I'm skeptical of private equity, hedge funds etc, but this shop has a solid record, hence my query..
Warm regards, | James
huntertheory
Posts: 300
Joined: Sat Mar 27, 2010 8:05 am

Re: Private Equity: Silver Lake Partners - Fund VII

Post by huntertheory »

Presumably your banker can give you lots of detailed information, including about general dynamics with investing in private equity - tax implications of being an LP, timing of distributions, what companies and investments this fund is invested in, etc. Is this an existing fund, and if so how much life does it have left? If you are purchasing LP interests of an existing fund, watch out for recent distributions (ie, like buying, not buying the dividend in a stock).

Silver Lake is one of the top PE shots with a great reputation in terms of returns (and a tough persona in negotiations). They also tend to be fairly tech focused so curious how the LP interests and investments are marked given recent market developments. Also without inside knowledge the fees are presumably typical for top tier PE - 2 and 20.

Upshot is I’d definitely consider investing a small piece into a PE fund like Silver Lake, but it’s a much more complex investment so much more to understand (and can only get so much from this board).
LFKB
Posts: 954
Joined: Mon Dec 24, 2012 7:06 pm

Re: Private Equity: Silver Lake Partners - Fund VII

Post by LFKB »

livesoft wrote: Thu May 12, 2022 8:42 am Don't know anything about it, but the name sounds like a new development that some of my rich banker friends are building nice mansions on 5 acre lots located in the mountains of Idaho on a nice lake.
Silver Lake has been around a long time and is one of the most successful private equity funds. Their returns across multiples decades and varying market environments have been incredible. They are one of the largest private equity funds and have owned and in some cases turned around a number of high profile companies that you would know.

Their last four funds have returned 28% to 37% per year (net of fees). Their worst performing fund ever has been 11%. You can see their track record here.

I’d invest if I had the opportunity.

https://www.calpers.ca.gov/page/investm ... erformance

How are you getting access to the fund OP?
Last edited by LFKB on Thu May 12, 2022 8:58 am, edited 1 time in total.
Topic Author
James123
Posts: 43
Joined: Fri Aug 17, 2007 11:29 pm

Re: Private Equity: Silver Lake Partners - Fund VII

Post by James123 »

huntertheory wrote: Thu May 12, 2022 8:47 am Presumably your banker can give you lots of detailed information, including about general dynamics with investing in private equity - tax implications of being an LP, timing of distributions, what companies and investments this fund is invested in, etc. Is this an existing fund, and if so how much life does it have left? If you are purchasing LP interests of an existing fund, watch out for recent distributions (ie, like buying, not buying the dividend in a stock).

Silver Lake is one of the top PE shots with a great reputation in terms of returns (and a tough persona in negotiations). They also tend to be fairly tech focused so curious how the LP interests and investments are marked given recent market developments. Also without inside knowledge the fees are presumably typical for top tier PE - 2 and 20.

Upshot is I’d definitely consider investing a small piece into a PE fund like Silver Lake, but it’s a much more complex investment so much more to understand (and can only get so much from this board).
It's a new fund. They plan to raise $ 25 billion. 10 year period. The management fees is 1.5% per annum during investment period and 1% after the capital is invested. Silverlake will also charge 20% of the return over 8% per annum return. My banker is charging 1.5% one time fees on the committed amount...
Warm regards, | James
nyclon
Posts: 444
Joined: Fri Oct 02, 2015 5:30 pm

Re: Private Equity: Silver Lake Partners - Fund VII

Post by nyclon »

James123 wrote: Thu May 12, 2022 8:57 am
huntertheory wrote: Thu May 12, 2022 8:47 am Presumably your banker can give you lots of detailed information, including about general dynamics with investing in private equity - tax implications of being an LP, timing of distributions, what companies and investments this fund is invested in, etc. Is this an existing fund, and if so how much life does it have left? If you are purchasing LP interests of an existing fund, watch out for recent distributions (ie, like buying, not buying the dividend in a stock).

Silver Lake is one of the top PE shots with a great reputation in terms of returns (and a tough persona in negotiations). They also tend to be fairly tech focused so curious how the LP interests and investments are marked given recent market developments. Also without inside knowledge the fees are presumably typical for top tier PE - 2 and 20.

Upshot is I’d definitely consider investing a small piece into a PE fund like Silver Lake, but it’s a much more complex investment so much more to understand (and can only get so much from this board).
It's a new fund. They plan to raise $ 25 billion. 10 year period. The management fees is 1.5% per annum during investment period and 1% after the capital is invested. Silverlake will also charge 20% of the return over 8% per annum return. My banker is charging 1.5% one time fees on the committed amount...
I would recommend talking to vanguard about its harbourvest offering if you’re considering buying into a single fund. It’s low cost and highly diversified with access to the best PE/VC managers. Also, 1.5% buy in fee is ridiculous.
dbr
Posts: 40787
Joined: Sun Mar 04, 2007 9:50 am

Re: Private Equity: Silver Lake Partners - Fund VII

Post by dbr »

James123 wrote: Thu May 12, 2022 8:57 am My banker is charging 1.5% one time fees on the committed amount...
I have neither information nor advice concerning the investment, but let us underline that your banker is apparently not a disinterested party. What is a banker doing charging fees in an investment? Do you mean you are hearing about this from a broker working in your bank or somehow affiliated with your bank? My bank has always had office space for a broker working with the bank corporation brokerage arm. He is a perfectly fine fellow but he makes his living selling investments to people and he is not a banker.
Topic Author
James123
Posts: 43
Joined: Fri Aug 17, 2007 11:29 pm

Re: Private Equity: Silver Lake Partners - Fund VII

Post by James123 »

dbr wrote: Thu May 12, 2022 9:13 am
James123 wrote: Thu May 12, 2022 8:57 am My banker is charging 1.5% one time fees on the committed amount...
I have neither information nor advice concerning the investment, but let us underline that your banker is apparently not a disinterested party. What is a banker doing charging fees in an investment? Do you mean you are hearing about this from a broker working in your bank or somehow affiliated with your bank? My bank has always had office space for a broker working with the bank corporation brokerage arm. He is a perfectly fine fellow but he makes his living selling investments to people and he is not a banker.
In the past I have not paid attention to the bank broker as I invest in index funds. But I thought I will get advice from people on this board as this seemed like a good opportunity..
Warm regards, | James
alex_686
Posts: 10376
Joined: Mon Feb 09, 2015 2:39 pm

Re: Private Equity: Silver Lake Partners - Fund VII

Post by alex_686 »

dbr wrote: Thu May 12, 2022 9:13 am I have neither information nor advice concerning the investment, but let us underline that your banker is apparently not a disinterested party. What is a banker doing charging fees in an investment? Do you mean you are hearing about this from a broker working in your bank or somehow affiliated with your bank? My bank has always had office space for a broker working with the bank corporation brokerage arm. He is a perfectly fine fellow but he makes his living selling investments to people and he is not a banker.
I am a modest proponent of hedge funds, private equity, private REITs, etc. They are a tool which has its place in certain situations. I have compared them to a chainsaw. It can do lots of useful stuff or take off your leg.

Due to the illiquid and complex nature of these funds the sponsors need to screen who can use them. On the other hand whomever is buying these things are going to need help in finding them and understand what they are buying. These are not plain vanilla index funds. The fee charged is in line on what is being charged and seems reasonable. For a little context, my past jobs were vetting funds and helping advisors understand what they were selling.

Yes, this does lead to all sorts of conflict of interests. I do think this structure tends to be the most manageable.

OP: 3 points.

Silver Lake has a good reputation. That does not mean that this new fund will do well in the future. It helps with the odds, but no guarantee.

The fees are on the high but acceptable end. Institutional buyers with large pots of money might be able to negotiate a better deal. On the other hand Silver Lake has a good reputation so they may be relucent to come down.

What does you advisor think your asset allocation should be? Generally speaking, these assets are high risk, highly diversifying, and very illiquid. This leads to 2 conclusions. We are looking at a time horizon of over 10 years and should be no more than 20% of your assets. You generally want to buy 6 to 10 of these products at a minimum. So the entry point tends to be clients with over 20m in liquid assets.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
Topic Author
James123
Posts: 43
Joined: Fri Aug 17, 2007 11:29 pm

Re: Private Equity: Silver Lake Partners - Fund VII

Post by James123 »

alex_686 wrote: Thu May 12, 2022 2:45 pm
dbr wrote: Thu May 12, 2022 9:13 am
What does you advisor think your asset allocation should be? Generally speaking, these assets are high risk, highly diversifying, and very illiquid. This leads to 2 conclusions. We are looking at a time horizon of over 10 years and should be no more than 20% of your assets. You generally want to buy 6 to 10 of these products at a minimum. So the entry point tends to be clients with over 20m in liquid assets.



Thank you that is very helpful..
I don't have a advisor, as I invest in index funds. The advisor from the bank has tried to sell us some mutual funds in the past and I have declined to play. If I go through with this investment, I'm sure he will suggest similar investments in future. This will potentially be my first investment in private equity. It should be less than 20% of the assets, As I I invest in 6-10 funds over next few years, I will try to keep them below 20% of my assets.
Warm regards.
Warm regards, | James
alex_686
Posts: 10376
Joined: Mon Feb 09, 2015 2:39 pm

Re: Private Equity: Silver Lake Partners - Fund VII

Post by alex_686 »

James123 wrote: Thu May 12, 2022 3:58 pm [Thank you that is very helpful..
I don't have a advisor, as I invest in index funds. The advisor from the bank has tried to sell us some mutual funds in the past and I have declined to play. If I go through with this investment, I'm sure he will suggest similar investments in future. This will potentially be my first investment in private equity. It should be less than 20% of the assets, As I I invest in 6-10 funds over next few years, I will try to keep them below 20% of my assets.
Warm regards.
And now I am skewing in the other direction. A banker should not be pitching a asset in isolation. A banker who is pitching something in isolation is not a advisor - they are a sales person.

I mean, all advisors are basically sales people but there are quality advisors who charge a high fee because they deliver real value and then there are those who have a big smile, make you feel good, and pocket the cash. I mean, any decent advisor knows that you start at the portfolio level. Does this person know your story?

This is how it is supposed to go.

You and your advisor reviews your ISP. i.e., your goals, risk tolerances, market expectations, etc. You come to the conclusion that adding illiquid and complex assets (a.k.a. exotic assets) improves the chances that you will your goals. Direct real-estate, oil wells, hedge funds, PE, etc. You come up with a game plan. You execute this plan over a few years. I mean - we are dealing with illiquid assets. It is best to wait until the right opportunity comes along rather than picking the first option.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
Topic Author
James123
Posts: 43
Joined: Fri Aug 17, 2007 11:29 pm

Re: Private Equity: Silver Lake Partners - Fund VII

Post by James123 »

alex_686 wrote: Thu May 12, 2022 4:46 pm
James123 wrote: Thu May 12, 2022 3:58 pm [Thank you that is very helpful..
I don't have a advisor, as I invest in index funds. The advisor from the bank has tried to sell us some mutual funds in the past and I have declined to play. If I go through with this investment, I'm sure he will suggest similar investments in future. This will potentially be my first investment in private equity. It should be less than 20% of the assets, As I I invest in 6-10 funds over next few years, I will try to keep them below 20% of my assets.
Warm regards.
And now I am skewing in the other direction. A banker should not be pitching a asset in isolation. A banker who is pitching something in isolation is not a advisor - they are a sales person.

I mean, all advisors are basically sales people but there are quality advisors who charge a high fee because they deliver real value and then there are those who have a big smile, make you feel good, and pocket the cash. I mean, any decent advisor knows that you start at the portfolio level. Does this person know your story?

This is how it is supposed to go.

You and your advisor reviews your ISP. i.e., your goals, risk tolerances, market expectations, etc. You come to the conclusion that adding illiquid and complex assets (a.k.a. exotic assets) improves the chances that you will your goals. Direct real-estate, oil wells, hedge funds, PE, etc. You come up with a game plan. You execute this plan over a few years. I mean - we are dealing with illiquid assets. It is best to wait until the right opportunity comes along rather than picking the first option.
Let me give you the whole story. Couple of years ago this advisor had offered to manage my portfolio. He offered us a slew of mutual funds (with high expense ratios) in different asset classes and offered to manage at least a part of my portfolio. Since I'm a boglehead, I rejected his advances and continued investing in index funds. Recently I have been thinking of private equity and angel investing so I approached him for possible vehicles. That is when he recommended this fund...
Warm regards, | James
123
Posts: 8555
Joined: Fri Oct 12, 2012 3:55 pm

Re: Private Equity: Silver Lake Partners - Fund VII

Post by 123 »

These kinds of investments typically do the tax reporting via a form K-1. If you don't already receive K-1's for other holdings you may be surprised by the tax issues that can arise. Generally if you like to get your taxes "wrapped up" early that capability usually goes away when you enter the K-1 zone, you typically have to take a detour through Extension City in many/most years.

A consideration can be the exit strategy for you (or your heirs) for such a holding. Sometimes the only way out is to take a steep discount on the holding, after all Silver Lake Partners likely will keep on coming up with shiny new offerings with glitzy brochures and the sales commission (to either the broker and/or the brokerage firm) has to get paid by someone. Part of the discount that occurs when you exit (if you can) covers the sales commission to the subsequent owner. No one will want your moldy used shares when they can get shiny new ones. Often these investments get a bit "soiled" as they build up a financial history.
The closest helping hand is at the end of your own arm.
alex_686
Posts: 10376
Joined: Mon Feb 09, 2015 2:39 pm

Re: Private Equity: Silver Lake Partners - Fund VII

Post by alex_686 »

James123 wrote: Thu May 12, 2022 5:03 pm Let me give you the whole story. Couple of years ago this advisor had offered to manage my portfolio. He offered us a slew of mutual funds (with high expense ratios) in different asset classes and offered to manage at least a part of my portfolio. Since I'm a boglehead, I rejected his advances and continued investing in index funds. Recently I have been thinking of private equity and angel investing so I approached him for possible vehicles. That is when he recommended this fund...
So I am kind of skeptical that this would be a good investment for you, mainly because I work in risk management and tend to be skeptical.

Before buying anything I would suggest that you get the value of that big commission the broker will be earning. They are being paid to review suitably. Have them review your IPS and asset allocation first. They should be able to work out a rational plan where/if this PE fits in.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
Topic Author
James123
Posts: 43
Joined: Fri Aug 17, 2007 11:29 pm

Re: Private Equity: Silver Lake Partners - Fund VII

Post by James123 »

123 wrote: Thu May 12, 2022 8:17 pm These kinds of investments typically do the tax reporting via a form K-1. If you don't already receive K-1's for other holdings you may be surprised by the tax issues that can arise. Generally if you like to get your taxes "wrapped up" early that capability usually goes away when you enter the K-1 zone, you typically have to take a detour through Extension City in many/most years.

A consideration can be the exit strategy for you (or your heirs) for such a holding. Sometimes the only way out is to take a steep discount on the holding, after all Silver Lake Partners likely will keep on coming up with shiny new offerings with glitzy brochures and the sales commission (to either the broker and/or the brokerage firm) has to get paid by someone. Part of the discount that occurs when you exit (if you can) covers the sales commission to the subsequent owner. No one will want your moldy used shares when they can get shiny new ones. Often these investments get a bit "soiled" as they build up a financial history.
This fund has a life of 10 years. Why will the he exit be a problem after 10 years or why we my shares be discounted? I’m assuming that SLP will structure the fund so that the fund is liquid at year 10. Thanks for your reply.
Warm regards
Warm regards, | James
mkc
Posts: 1270
Joined: Wed Apr 17, 2013 2:59 pm

Re: Private Equity: Silver Lake Partners - Fund VII

Post by mkc »

James123 wrote: Thu May 12, 2022 5:03 pm
Let me give you the whole story. Couple of years ago this advisor had offered to manage my portfolio. He offered us a slew of mutual funds (with high expense ratios) in different asset classes and offered to manage at least a part of my portfolio. Since I'm a boglehead, I rejected his advances and continued investing in index funds. Recently I have been thinking of private equity and angel investing so I approached him for possible vehicles. That is when he recommended this fund...
Why would you go back to someone who had previously recommended inappropriate investments and tried to get their claws into your portfolio?
cascadian
Posts: 20
Joined: Tue Dec 14, 2021 7:30 pm

Re: Private Equity: Silver Lake Partners - Fund VII

Post by cascadian »

This really doesn't seem like a good idea for a variety of reasons and recommend taking a hard pass.

Your broker is likely earning something called a placement agent fee, which is paid by Silver Lake for attracting investors to their fund. While Silver Lake has a good track record, like all investments prior performance is not indicative of future results. Assuming this is a primary fund, meaning it will be investing in a blind pool of unknown companies. You'll be paying a management fee on committed, but not called capital, in addition to a management fee on invested capital and a performance-based fee. You'll be subject to a J-curve, meaning you'll be paying fees and realizing negative returns for the first couple of years, while they search for investments and hope to execute an exit strategy later in the fund's life cycle. A good chunk of any alpha generated will flow to the investment manager, so perhaps look at a growth equity index fund for comparable performance after fees with liquidity. Speaking of liquidity, this type of investment typically has a 10-12 year life plus a few extra optional years subject of course to an exit strategy that is largely dependent on the prevailing economic environment. You'll also be subject to strange tax regulations that could result in you needing to file extensions while you wait for K-1 tax forms to be filed 3-8 months after the calendar year-end.

When delving into PE you should consider owning multiple vintages and perhaps starting with a secondary PE fund to offset the negative J-curve effect on your initial entry to the space. This is not a recommendation, but being new to private equity you could take a look at another respected investment manager in the space with Hamilton Lane's new retail oriented strategy called Private Assets Fund (“PAF”) that is a ‘40 Act registered investment vehicle with multiple share classes (I: XHLIX) that provides qualified clients with access to a diversified private markets portfolio.
exodusNH
Posts: 3744
Joined: Wed Jan 06, 2021 8:21 pm

Re: Private Equity: Silver Lake Partners - Fund VII

Post by exodusNH »

James123 wrote: Thu May 12, 2022 5:03 pm
alex_686 wrote: Thu May 12, 2022 4:46 pm
James123 wrote: Thu May 12, 2022 3:58 pm [Thank you that is very helpful..
I don't have a advisor, as I invest in index funds. The advisor from the bank has tried to sell us some mutual funds in the past and I have declined to play. If I go through with this investment, I'm sure he will suggest similar investments in future. This will potentially be my first investment in private equity. It should be less than 20% of the assets, As I I invest in 6-10 funds over next few years, I will try to keep them below 20% of my assets.
Warm regards.
And now I am skewing in the other direction. A banker should not be pitching a asset in isolation. A banker who is pitching something in isolation is not a advisor - they are a sales person.

I mean, all advisors are basically sales people but there are quality advisors who charge a high fee because they deliver real value and then there are those who have a big smile, make you feel good, and pocket the cash. I mean, any decent advisor knows that you start at the portfolio level. Does this person know your story?

This is how it is supposed to go.

You and your advisor reviews your ISP. i.e., your goals, risk tolerances, market expectations, etc. You come to the conclusion that adding illiquid and complex assets (a.k.a. exotic assets) improves the chances that you will your goals. Direct real-estate, oil wells, hedge funds, PE, etc. You come up with a game plan. You execute this plan over a few years. I mean - we are dealing with illiquid assets. It is best to wait until the right opportunity comes along rather than picking the first option.
Let me give you the whole story. Couple of years ago this advisor had offered to manage my portfolio. He offered us a slew of mutual funds (with high expense ratios) in different asset classes and offered to manage at least a part of my portfolio. Since I'm a boglehead, I rejected his advances and continued investing in index funds. Recently I have been thinking of private equity and angel investing so I approached him for possible vehicles. That is when he recommended this fund...
I'm not sure I'd seek the advice from someone who gave you bad advice in the past.
frostyblue
Posts: 17
Joined: Tue Oct 09, 2018 12:34 am

Re: Private Equity: Silver Lake Partners - Fund VII

Post by frostyblue »

I'm actually very surprised a firm of Silver Lake's reputation, track record, and scale bothers raising money like this (meaning from individual HNW investors and using what appears to be a private banker). Their Fund VI was oversubscribed and raised like $20B. Moreover, these have been banner years for all the top pedigree PE shops, with most of them raising the caps on their funds because large, institutional investors (i.e. pensions, SWFs) are shoveling cash at them. I always thought the minimums to get into the funds of the top PE firms ran well into the millions of dollars and that they wouldn't expend any time/effort marking to the HNW space (unless HNW was throwing like 8 figure sums their way). Although I know this trend has shifted some and there are firms targeting the HNW or "retail" market.
All that said, while PE "peak" returns are likely past and slimmer returns probably lie ahead, a fund like Silver Lake VII is definitely one I would consider putting $$ into as long as it didn't dominate my portfolio.. The idea of paying any kind of upfront commission to a banker/placement agent isn't appealing. If you have the wealth to access this type of fund, I would consider seeing if you can go a lower cost route (i.e. avoid the placement agent fee). I think worst case - Silver Lake VII's net return might underperform a cheap, total stock index fund (and this would be a big black mark on their track record).. but as long as you aren't investing more than a fraction of your total portfolio - the amount you would be comfortable putting into a tech-oriented stock fund that you know is likely higher risk/reward - I think the odds of this fund screwing up your retirement projections or otherwise blowing up your portfolio are low (and if the latter did happen, it would be a pretty epic fall for this firm and really send some shockwaves through PE)..
Valuethinker
Posts: 44529
Joined: Fri May 11, 2007 11:07 am

Re: Private Equity: Silver Lake Partners - Fund VII

Post by Valuethinker »

frostyblue wrote: Fri May 13, 2022 12:41 am I'm actually very surprised a firm of Silver Lake's reputation, track record, and scale bothers raising money like this (meaning from individual HNW investors and using what appears to be a private banker). Their Fund VI was oversubscribed and raised like $20B. Moreover, these have been banner years for all the top pedigree PE shops, with most of them raising the caps on their funds because large, institutional investors (i.e. pensions, SWFs) are shoveling cash at them. I always thought the minimums to get into the funds of the top PE firms ran well into the millions of dollars and that they wouldn't expend any time/effort marking to the HNW space (unless HNW was throwing like 8 figure sums their way). Although I know this trend has shifted some and there are firms targeting the HNW or "retail" market.
All that said, while PE "peak" returns are likely past and slimmer returns probably lie ahead, a fund like Silver Lake VII is definitely one I would consider putting $$ into as long as it didn't dominate my portfolio.. The idea of paying any kind of upfront commission to a banker/placement agent isn't appealing. If you have the wealth to access this type of fund, I would consider seeing if you can go a lower cost route (i.e. avoid the placement agent fee). I think worst case - Silver Lake VII's net return might underperform a cheap, total stock index fund (and this would be a big black mark on their track record).. but as long as you aren't investing more than a fraction of your total portfolio - the amount you would be comfortable putting into a tech-oriented stock fund that you know is likely higher risk/reward - I think the odds of this fund screwing up your retirement projections or otherwise blowing up your portfolio are low (and if the latter did happen, it would be a pretty epic fall for this firm and really send some shockwaves through PE)..
Good analysis.

OP should definitely not risk more than 10% of his portfolio in PE. And accept total illiquidity. I would say not more than 5% in one fund.

(someone with a $10m portfolio could probably go to 20%).

Silverlake is a good name. Future IRRs are likely to be a heck of a lot lower (low double digits, say) net of fees. This is the top of a cycle - the amount of money being put into PE is just fearsome.

Tax implications will be key - returns are not predictable in terms of when you will get the cash back.

It's worth noting that tech stocks are *lot* cheaper than they were 12 months ago. That's good for Silverlake (for new investments) because that is their feeding ground (private valuations reflect public valuations). But it also means that public equity investing has higher prospective returns.

Kaufman Foundation in St Louis had a piece about their investments in Private Equity. Pretty ugly.
Valuethinker
Posts: 44529
Joined: Fri May 11, 2007 11:07 am

Re: Private Equity: Silver Lake Partners - Fund VII

Post by Valuethinker »

James123 wrote: Thu May 12, 2022 9:40 pm
123 wrote: Thu May 12, 2022 8:17 pm These kinds of investments typically do the tax reporting via a form K-1. If you don't already receive K-1's for other holdings you may be surprised by the tax issues that can arise. Generally if you like to get your taxes "wrapped up" early that capability usually goes away when you enter the K-1 zone, you typically have to take a detour through Extension City in many/most years.

A consideration can be the exit strategy for you (or your heirs) for such a holding. Sometimes the only way out is to take a steep discount on the holding, after all Silver Lake Partners likely will keep on coming up with shiny new offerings with glitzy brochures and the sales commission (to either the broker and/or the brokerage firm) has to get paid by someone. Part of the discount that occurs when you exit (if you can) covers the sales commission to the subsequent owner. No one will want your moldy used shares when they can get shiny new ones. Often these investments get a bit "soiled" as they build up a financial history.
This fund has a life of 10 years. Why will the he exit be a problem after 10 years or why we my shares be discounted? I’m assuming that SLP will structure the fund so that the fund is liquid at year 10. Thanks for your reply.
Warm regards
What happens is there is an investment period (typically up to end of year 5).

Realisations start as soon as they can - your first one can be in 18 months in a bull market.

So you are still putting money *in* but also money can be distributed *out*.

By year 5 the year 1 investments should be exiting. The NAV is hopefully 2x what you invested (even 3x) but it falls with each distribution/ sale or writeoff of an asset.

If all goes well, by year 10 the NAV is pretty near 0. A few "living dead" investments that have not been written off. Often they are sold to the next fund (which typically starts raising in year 2-3; there's usually a protection clause that say half of the previous fund has to be invested before they start raising the next one).

As you can imagine the personal tax on this can get quite complicated - depending upon which country you live in.
alex_686
Posts: 10376
Joined: Mon Feb 09, 2015 2:39 pm

Re: Private Equity: Silver Lake Partners - Fund VII

Post by alex_686 »

James123 wrote: Thu May 12, 2022 9:40 pm This fund has a life of 10 years. Why will the he exit be a problem after 10 years or why we my shares be discounted? I’m assuming that SLP will structure the fund so that the fund is liquid at year 10. Thanks for your reply.
Warm regards
Because they may not be able to sell the underlying assets.

As a very simple example, consider a Real Estate fund where the maturity happened during the 2008 real estate market crash. Unable to sell the properties at a profit the fund could switch to zombie mode. Having lost their 20% carry bonus they can still milk the fund for the 1% management fee. So they run the fund for the extra 10 years allowed.

Your broker’s 1.5% commission will pay for them to explain to you the risks and how this could play out.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
Topic Author
James123
Posts: 43
Joined: Fri Aug 17, 2007 11:29 pm

Re: Private Equity: Silver Lake Partners - Fund VII

Post by James123 »

Thank you all for your input.
I will summarize my take-away after reading all the replies…
1. Silverlake seems to be a reputable company
2. They have given excellent returns in the past. But there is a possibility that those returns might not be repeated.
3. The possibility that the fund will return lower than S & P 500 is low. If that happened it would send shock waves in the PE marketplace.
4. If market conditions are bad at the end of ten years the fund might not be able to sell off its assets.
5. I should not invest more that 20% of my portfolio in private equity.

Warm regards.
Warm regards, | James
Flora
Posts: 194
Joined: Sat Mar 26, 2016 6:19 am

Re: Private Equity: Silver Lake Partners - Fund VII

Post by Flora »

And:

6. May need to extend tax returns and engage a tax professional to handle the likely complicated Schedule K-1 (and K-3) and pages and pages of footnotes, and potentially other (non-resident) state tax filings
Flashes1
Posts: 1222
Joined: Wed May 07, 2008 7:43 am

Re: Private Equity: Silver Lake Partners - Fund VII

Post by Flashes1 »

I would pursue it if I had the opportunity to invest in the fund. I look at it as another asset class that will provide diversification and the most sophisticated investors in the world are heavy in private equity. I loan money to private equity (so I may not like what they do to a lot of companies via leverage and general treatment of a companies' commitment to local communities and its employees) but if you have no moral issues, they can provide outsized returns.
CletusCaddy
Posts: 558
Joined: Sun Sep 12, 2021 4:23 am

Re: Private Equity: Silver Lake Partners - Fund VII

Post by CletusCaddy »

Please let us know what bank you do business with that gives you access to such opportunities
LearnFin
Posts: 9
Joined: Mon Oct 18, 2021 10:12 pm

Re: Private Equity: Silver Lake Partners - Fund VII

Post by LearnFin »

Regarding of timing of investing in PE in this vintage year - Does anything change; considering the current down market?
Topic Author
James123
Posts: 43
Joined: Fri Aug 17, 2007 11:29 pm

Re: Private Equity: Silver Lake Partners - Fund VII

Post by James123 »

CletusCaddy wrote: Sat May 14, 2022 12:39 pm Please let us know what bank you do business with that gives you access to such opportunities
JP Morgan.
Last edited by James123 on Sun May 15, 2022 9:30 am, edited 1 time in total.
Warm regards, | James
Topic Author
James123
Posts: 43
Joined: Fri Aug 17, 2007 11:29 pm

Re: Private Equity: Silver Lake Partners - Fund VII

Post by James123 »

LearnFin wrote: Sun May 15, 2022 12:16 am Regarding of timing of investing in PE in this vintage year - Does anything change; considering the current down market?
I’m not sure. I’m hoping that it’s a positive as the valuation of potential opportunities should be lower…
Warm regards, | James
LearnFin
Posts: 9
Joined: Mon Oct 18, 2021 10:12 pm

Re: Private Equity: Silver Lake Partners - Fund VII

Post by LearnFin »

When is the fund likely to close ? Given the current market situation, it’s likely that it will take longer to raise the targeted investment, and, deployment will be slower - pushing out to next year.
NYCaviator
Posts: 722
Joined: Sat Apr 09, 2016 5:06 pm
Location: NYC

Re: Private Equity: Silver Lake Partners - Fund VII

Post by NYCaviator »

James123 wrote: Sun May 15, 2022 3:14 am
CletusCaddy wrote: Sat May 14, 2022 12:39 pm Please let us know what bank you do business with that gives you access to such opportunities
JP Morgan.
SLP has a good reputation, they seem to know what they re doing, and they've gotten some great performance out of their past funds. But, PE is not for the faint of heart.

What is the buy-in and what % of your overall portfolio would this represent? Typically the PE buy-ins are > $10-20m, so I wouldn't take this decision lightly. (A lot more due diligence is required than a google search and post on Bogleheads).

I'm frankly very surprised a banker would be fishing for individual investors, especially a passive investor whose portfolio isn't already managed by the bank. Typically you see institutional investors getting into PE, but the only individuals I know of in PE have family offices or very, very large portfolios already managed by the bank; even then, PE is but one portion of their overall asset picture. It seems very fishy to me. I would proceed with caution, especially in the current economic climate. I wouldn't expect outsized PE returns moving forward for the foreseeable future.

This is something you need to talk over with a seasoned advisor who is experienced in PE (and not the guy in the bank who will make 1.5% off your investment).
FreelancerNYC
Posts: 36
Joined: Thu Mar 19, 2020 7:30 pm
Location: Manhattan/Miami Beach

Re: Private Equity: Silver Lake Partners - Fund VII

Post by FreelancerNYC »

[Duplicate post removed]
Last edited by FreelancerNYC on Sun May 15, 2022 7:06 pm, edited 1 time in total.
FreelancerNYC
Posts: 36
Joined: Thu Mar 19, 2020 7:30 pm
Location: Manhattan/Miami Beach

Re: Private Equity: Silver Lake Partners - Fund VII

Post by FreelancerNYC »

NYCaviator wrote: Sun May 15, 2022 5:29 pm
James123 wrote: Sun May 15, 2022 3:14 am
CletusCaddy wrote: Sat May 14, 2022 12:39 pm Please let us know what bank you do business with that gives you access to such opportunities
JP Morgan.
SLP has a good reputation, they seem to know what they re doing, and they've gotten some great performance out of their past funds. But, PE is not for the faint of heart.

What is the buy-in and what % of your overall portfolio would this represent? Typically the PE buy-ins are > $10-20m, so I wouldn't take this decision lightly. (A lot more due diligence is required than a google search and post on Bogleheads).

I'm frankly very surprised a banker would be fishing for individual investors, especially a passive investor whose portfolio isn't already managed by the bank. Typically you see institutional investors getting into PE, but the only individuals I know of in PE have family offices or very, very large portfolios already managed by the bank; even then, PE is but one portion of their overall asset picture. It seems very fishy to me. I would proceed with caution, especially in the current economic climate. I wouldn't expect outsized PE returns moving forward for the foreseeable future.

This is something you need to talk over with a seasoned advisor who is experienced in PE (and not the guy in the bank who will make 1.5% off your investment).

If the banker is offering the Silver Lake investment, OP likely has significant assets, but could be wrong. I don’t think the fee would exist if JPM were managing the assets. If OP’s not a client, tacking on the fee makes sense.

I’m also curious what the minimum investment is. Guessing $10MM unless the bank is looking to pool assets from a bunch of non-JPM Private Bank clients in a grab at some easy placement fees.
Spencer
Posts: 158
Joined: Wed Mar 19, 2014 10:20 am

Re: Private Equity: Silver Lake Partners - Fund VII

Post by Spencer »

This fund is floating around all the usually HNW distribution channels, and the minimum is ~$250k from what I've seen. Most of the big PE shops have moved "down market" into the HNW space and are offering feeder fund access at these minimums.

To the OP - Nothing wrong with some PE exposure but go in understanding the commitment and potential hassles.

- Your commitment will be called throughout the investment period. Depending on their activity, this could mean a number of wires over the next few years that you need to fund within a few days. I've had smaller private deals call 10-15 times over a few years - it's a pain in the butt, and depending on your cash situation, could mean you're holding a significant portion (or all) of the commitment in cash over the next few years while they call it. That cash drag is real.

- Taxes - You'll get a K1, and probably numerous state returns, and it will be late. Plan to file on extension and add complexity to your tax return. If you file your own taxes, a complex K1 situation could require a CPA.

- Term - These things are usually 10-15 year commitments with no liquidity outside of a secondary offering (which is usually significantly discounted for smaller positions like this).

- Reinvestment allocation - If you're trying to keep this portion of your portfolio allocated to PE, it's extremely hard to do with one fund position. You'll be sitting on cash going in while they call, and in the distribution phase, you'll be getting distributions that are hard to reinvest in other PE positions due to their small size.

- Returns - Be aware of how the quoted fund return metrics work. You'll usually see IRR & MOIC figures, and those are on cash in and cash out at the fund level. They do not factor in cash drag on your committed funds, nor do they factor in tax drag, which can be huge at the LP level. Depending on your situation, having a fully invested allocation at a much lower return level can result in higher overall cash returns in the end compared to these PE fund type returns, especially if you can stay invested and aren't forced to realize gains.

Bottom line, this is not a "set it and forget it" allocation like index funds. It will be more of a hassle, more risk, but the returns can be higher.

My 2 cents - if you want PE exposure, look for a fund of funds that will get you exposure to a large portfolio of PE sponsors, strategies and underlying companies. Someone already mentioned the Harbourvest fund via Vanguard which would be a good place to start. Hard to get info from VG on this, but you can look at Harbourvest's publically listed UK fund, https://www.hvpe.com/ to see what they do. Note that HVPE is a is a PFIC so you don't want to invest in it unless you're using IRA/401k money.
Valuethinker
Posts: 44529
Joined: Fri May 11, 2007 11:07 am

Re: Private Equity: Silver Lake Partners - Fund VII

Post by Valuethinker »

Spencer wrote: Mon May 16, 2022 12:03 pm This fund is floating around all the usually HNW distribution channels, and the minimum is ~$250k from what I've seen. Most of the big PE shops have moved "down market" into the HNW space and are offering feeder fund access at these minimums.

To the OP - Nothing wrong with some PE exposure but go in understanding the commitment and potential hassles.

- Your commitment will be called throughout the investment period. Depending on their activity, this could mean a number of wires over the next few years that you need to fund within a few days. I've had smaller private deals call 10-15 times over a few years - it's a pain in the butt, and depending on your cash situation, could mean you're holding a significant portion (or all) of the commitment in cash over the next few years while they call it. That cash drag is real.

- Taxes - You'll get a K1, and probably numerous state returns, and it will be late. Plan to file on extension and add complexity to your tax return. If you file your own taxes, a complex K1 situation could require a CPA.

- Term - These things are usually 10-15 year commitments with no liquidity outside of a secondary offering (which is usually significantly discounted for smaller positions like this).
If not obvious to an outside reader, usually the commitment to invest new funds (up to the amount originally allocated) is 5 years. "LP default" where due to some catastrophe you cannot make your call (transfer cash) is not a nice place to be in--you could in principle lose all your rights to money invested (in practice, you usually only get returns up to repayment of the amount invested so far, I believe).
- Reinvestment allocation - If you're trying to keep this portion of your portfolio allocated to PE, it's extremely hard to do with one fund position. You'll be sitting on cash going in while they call, and in the distribution phase, you'll be getting distributions that are hard to reinvest in other PE positions due to their small size.

- Returns - Be aware of how the quoted fund return metrics work. You'll usually see IRR & MOIC figures, and those are on cash in and cash out at the fund level. They do not factor in cash drag on your committed funds, nor do they factor in tax drag, which can be huge at the LP level. Depending on your situation, having a fully invested allocation at a much lower return level can result in higher overall cash returns in the end compared to these PE fund type returns, especially if you can stay invested and aren't forced to realize gains.
Again, for clarity to readers unfamiliar, the industry plays games. If I buy a Vanguard index fund, it's easy to work out IRR - (money in)...money out and use =XIRR. But with a PE fund, the timings of the cash flows mean that I have to hold cash available for further cash flows (again, up to the first 5 years, normally) and then I don't control the timing of returns (anywhere from 18 months to 10 years, and it can be extended (by majority vote of the Limited Partners) for up to another 2 years). So the numbers are not strictly comparable to a listed fund (where I can just sell shares when I need cash, and 100% of my money is invested on Day 1).
Bottom line, this is not a "set it and forget it" allocation like index funds. It will be more of a hassle, more risk, but the returns can be higher.
Good summary. It is also, conversely, surrendering all power. You are along for (at least) a 10 year ride, with no easy (or even possible, maybe) exit options.
My 2 cents - if you want PE exposure, look for a fund of funds that will get you exposure to a large portfolio of PE sponsors, strategies and underlying companies. Someone already mentioned the Harbourvest fund via Vanguard which would be a good place to start. Hard to get info from VG on this, but you can look at Harbourvest's publically listed UK fund, https://www.hvpe.com/ to see what they do. Note that HVPE is a is a PFIC so you don't want to invest in it unless you're using IRA/401k money.
PE is one of those situations where "back your winners". It's not the asset class you want exposure to (the cyclical timing is all wrong for that) it's the particular PE sponsors (ie Fund Managers).

Historically top quartile performance has tended to be followed by top quartile performance in subsequent funds. There is at least some analysis that says that as funds get bigger (and they will with each successive fund if you are top quartile) that performance fades back. But it's certainly a "run your winners" kind of bet.

So I could make a case that SLP is a better bet than a diversified fund-of-fund vehicle. However the size of this fund is such that average deal ticket size will be something like $1bn of equity/ deal value of $2.5bn, and there are fewer great opportunities.

(Barbarians at the Gate is still a great read on this. So too David Swensen wrote some insightful pages in his Personal Investments book, I believe).

It's not an easy call - and OP will curse me if he bets all on SLP & it happens to be the moment when things go off the boil (departure of key execs is a warning sign: if they can see that the "carried interest" ie the performance fee, will not be there for them OR if the principals in the fund don't look to be making ready for succession by promoting young, hot execs (none of us is probably as good a deal doer at 55 as we were at 35) then you will see employee churn. Succession bedevils these firms.
Valuethinker
Posts: 44529
Joined: Fri May 11, 2007 11:07 am

Re: Private Equity: Silver Lake Partners - Fund VII

Post by Valuethinker »

James123 wrote: Fri May 13, 2022 11:05 pm Thank you all for your input.
I will summarize my take-away after reading all the replies…
1. Silverlake seems to be a reputable company
2. They have given excellent returns in the past. But there is a possibility that those returns might not be repeated.
SLP is one of the most successful PE firms of their generation.

They are scaling up, that poses considerable risk.
3. The possibility that the fund will return lower than S & P 500 is low. If that happened it would send shock waves in the PE marketplace.
I would judge it not as low as all that -- maybe 1/3rd chance? "Shockwaves" - well, yes, but they had your money and collected hefty fees. The PE industry in some form will no doubt survive - 2000-03 destroyed a lot of Venture Capital (tech) firms, but the survivors stayed in business, invested, and it is the single most successful asset class (at least, as of say June 2021).

I doubt we will see too many crypto funds starting up from here -- but we are not allowed to discuss that subject & I could easily be totally wrong.
4. If market conditions are bad at the end of ten years the fund might not be able to sell off its assets.
Probably there will be so little NAV left that it won't matter. Worry about them having lousy returns, or long delays in sale of assets, meaning your IRR is not great.
5. I should not invest more that 20% of my portfolio in private equity.

Warm regards.
20% is a "I invested at the worst time in the last 25 years to invest in PE, and regretted it, but it didn't really change my life". It's definitely an upper threshold. I would say no more than 5% in one fund - enough to kick yourself that you invested too little.
sk2101
Posts: 567
Joined: Sun Jun 02, 2013 4:54 pm

Re: Private Equity: Silver Lake Partners - Fund VII

Post by sk2101 »

Silver Lake is a reputable PE firm and their funds generally perform well. The only reservation I have with this deal are the fees charged by JPMorgan. They have placement fees (one-time) and management fees (ongoing), and those are usually very high unless you are investing $5-$10M on a single fund. The fees can make a good investment turn into an underperforming one. I suggest you scrutinize those fees to make sure you understand them very well.
Topic Author
James123
Posts: 43
Joined: Fri Aug 17, 2007 11:29 pm

Re: Private Equity: Silver Lake Partners - Fund VII

Post by James123 »

sk2101 wrote: Mon May 16, 2022 12:51 pm Silver Lake is a reputable PE firm and their funds generally perform well. The only reservation I have with this deal are the fees charged by JPMorgan. They have placement fees (one-time) and management fees (ongoing), and those are usually very high unless you are investing $5-$10M on a single fund. The fees can make a good investment turn into an underperforming one. I suggest you scrutinize those fees to make sure you understand them very well.
At this point I have told my banker that if he insists on charging 1.5% one-time fees, I will not be investing in this fund. As far as SLP are concerned, I think I have no leverage negotiating a decrease in fees when I invest as a retail investor.
Warm regards, | James
Topic Author
James123
Posts: 43
Joined: Fri Aug 17, 2007 11:29 pm

Re: Private Equity: Silver Lake Partners - Fund VII

Post by James123 »

Spencer wrote: Mon May 16, 2022 12:03 pm This fund is floating around all the usually HNW distribution channels, and the minimum is ~$250k from what I've seen. Most of the big PE shops have moved "down market" into the HNW space and are offering feeder fund access at these minimums.

To the OP - Nothing wrong with some PE exposure but go in understanding the commitment and potential hassles.

- Your commitment will be called throughout the investment period. Depending on their activity, this could mean a number of wires over the next few years that you need to fund within a few days. I've had smaller private deals call 10-15 times over a few years - it's a pain in the butt, and depending on your cash situation, could mean you're holding a significant portion (or all) of the commitment in cash over the next few years while they call it. That cash drag is real.

- Taxes - You'll get a K1, and probably numerous state returns, and it will be late. Plan to file on extension and add complexity to your tax return. If you file your own taxes, a complex K1 situation could require a CPA.

- Term - These things are usually 10-15 year commitments with no liquidity outside of a secondary offering (which is usually significantly discounted for smaller positions like this).

- Reinvestment allocation - If you're trying to keep this portion of your portfolio allocated to PE, it's extremely hard to do with one fund position. You'll be sitting on cash going in while they call, and in the distribution phase, you'll be getting distributions that are hard to reinvest in other PE positions due to their small size.

- Returns - Be aware of how the quoted fund return metrics work. You'll usually see IRR & MOIC figures, and those are on cash in and cash out at the fund level. They do not factor in cash drag on your committed funds, nor do they factor in tax drag, which can be huge at the LP level. Depending on your situation, having a fully invested allocation at a much lower return level can result in higher overall cash returns in the end compared to these PE fund type returns, especially if you can stay invested and aren't forced to realize gains.

Bottom line, this is not a "set it and forget it" allocation like index funds. It will be more of a hassle, more risk, but the returns can be higher.

My 2 cents - if you want PE exposure, look for a fund of funds that will get you exposure to a large portfolio of PE sponsors, strategies and underlying companies. Someone already mentioned the Harbourvest fund via Vanguard which would be a good place to start. Hard to get info from VG on this, but you can look at Harbourvest's publically listed UK fund, https://www.hvpe.com/ to see what they do. Note that HVPE is a is a PFIC so you don't want to invest in it unless you're using IRA/401k money.
Thank you, this is very helpful..
Warm regards, | James
Topic Author
James123
Posts: 43
Joined: Fri Aug 17, 2007 11:29 pm

Re: Private Equity: Silver Lake Partners - Fund VII

Post by James123 »

Valuethinker wrote: Mon May 16, 2022 12:50 pm
James123 wrote: Fri May 13, 2022 11:05 pm Thank you all for your input.
I will summarize my take-away after reading all the replies…
1. Silverlake seems to be a reputable company
2. They have given excellent returns in the past. But there is a possibility that those returns might not be repeated.
SLP is one of the most successful PE firms of their generation.

They are scaling up, that poses considerable risk.
3. The possibility that the fund will return lower than S & P 500 is low. If that happened it would send shock waves in the PE marketplace.
I would judge it not as low as all that -- maybe 1/3rd chance? "Shockwaves" - well, yes, but they had your money and collected hefty fees. The PE industry in some form will no doubt survive - 2000-03 destroyed a lot of Venture Capital (tech) firms, but the survivors stayed in business, invested, and it is the single most successful asset class (at least, as of say June 2021).

I doubt we will see too many crypto funds starting up from here -- but we are not allowed to discuss that subject & I could easily be totally wrong.
4. If market conditions are bad at the end of ten years the fund might not be able to sell off its assets.
Probably there will be so little NAV left that it won't matter. Worry about them having lousy returns, or long delays in sale of assets, meaning your IRR is not great.
5. I should not invest more that 20% of my portfolio in private equity.

Warm regards.
20% is a "I invested at the worst time in the last 25 years to invest in PE, and regretted it, but it didn't really change my life". It's definitely an upper threshold. I would say no more than 5% in one fund - enough to kick yourself that you invested too little.
Thank you, this is very helpful..
Warm regards, | James
Topic Author
James123
Posts: 43
Joined: Fri Aug 17, 2007 11:29 pm

Re: Private Equity: Silver Lake Partners - Fund VII

Post by James123 »

FreelancerNYC wrote: Sun May 15, 2022 7:04 pm
NYCaviator wrote: Sun May 15, 2022 5:29 pm
James123 wrote: Sun May 15, 2022 3:14 am
CletusCaddy wrote: Sat May 14, 2022 12:39 pm Please let us know what bank you do business with that gives you access to such opportunities
JP Morgan.
SLP has a good reputation, they seem to know what they re doing, and they've gotten some great performance out of their past funds. But, PE is not for the faint of heart.

What is the buy-in and what % of your overall portfolio would this represent? Typically the PE buy-ins are > $10-20m, so I wouldn't take this decision lightly. (A lot more due diligence is required than a google search and post on Bogleheads).

I'm frankly very surprised a banker would be fishing for individual investors, especially a passive investor whose portfolio isn't already managed by the bank. Typically you see institutional investors getting into PE, but the only individuals I know of in PE have family offices or very, very large portfolios already managed by the bank; even then, PE is but one portion of their overall asset picture. It seems very fishy to me. I would proceed with caution, especially in the current economic climate. I wouldn't expect outsized PE returns moving forward for the foreseeable future.

This is something you need to talk over with a seasoned advisor who is experienced in PE (and not the guy in the bank who will make 1.5% off your investment).

If the banker is offering the Silver Lake investment, OP likely has significant assets, but could be wrong. I don’t think the fee would exist if JPM were managing the assets. If OP’s not a client, tacking on the fee makes sense.

I’m also curious what the minimum investment is. Guessing $10MM unless the bank is looking to pool assets from a bunch of non-JPM Private Bank clients in a grab at some easy placement fees.
While I'm banking with JPM, I'm not using their investment advisory services. We had meeting with their investment advisory person a few years back and I turned down their services as I invest in index funds. The minimum on this fund is $500k.
Warm regards, | James
LFS1234
Posts: 329
Joined: Fri Feb 08, 2019 4:13 am

Re: Private Equity: Silver Lake Partners - Fund VII

Post by LFS1234 »

2022 to me smells quite a lot like 2000.

According to the below link, venture capital investment in the US skyrocketed from $23 billion in 1998 to $119 billion in 2000, before plummeting back to $16 billion in 2002. Performance-chasing is live and well at the highest levels of finance as well as at the lowest, and the industry makes a great living off of its AUM fees alone. There is no incentive for the VC industry to contain its optimism; the party ends when it runs out of suckers with money to burn.

https://www.statista.com/statistics/277 ... ince-1995/

The fact that OP is being approached for a (presumably) relatively minor investment suggests that the VC fund is having trouble raising the capital it was hoping for from much larger, deeper pocketed institutional investors. This could be either because the institutional investors have backed away, or because the magnitude of funding currently being sought has overwhelmed even that of recent-year records.

The below article ("For Tech Startups, the Party is Over") appeared in yesterday's Wall Street Journal:

https://www.wsj.com/articles/for-tech-s ... 1652710330
Valuethinker
Posts: 44529
Joined: Fri May 11, 2007 11:07 am

Re: Private Equity: Silver Lake Partners - Fund VII

Post by Valuethinker »

LFS1234 wrote: Mon May 16, 2022 11:55 pm 2022 to me smells quite a lot like 2000.

According to the below link, venture capital investment in the US skyrocketed from $23 billion in 1998 to $119 billion in 2000, before plummeting back to $16 billion in 2002. Performance-chasing is live and well at the highest levels of finance as well as at the lowest, and the industry makes a great living off of its AUM fees alone. There is no incentive for the VC industry to contain its optimism; the party ends when it runs out of suckers with money to burn.

https://www.statista.com/statistics/277 ... ince-1995/

The fact that OP is being approached for a (presumably) relatively minor investment suggests that the VC fund is having trouble raising the capital it was hoping for from much larger, deeper pocketed institutional investors. This could be either because the institutional investors have backed away, or because the magnitude of funding currently being sought has overwhelmed even that of recent-year records.

The below article ("For Tech Startups, the Party is Over") appeared in yesterday's Wall Street Journal:

https://www.wsj.com/articles/for-tech-s ... 1652710330
Silver Lake Partners are not Venture Capitalists.

The Fund won't be investing in early stage tech cos, AFAIK. I agree with you that the VC market looks like a total bubble. Far, far too much money has gone in at too high valuations, far too few VCs provide any genuine Value Add. Swensen takes you through the math - you were better off in the Nasdaq index unless you were with the top 10 or so funds - and investments in those are invitation only (by implication Yale is in those, as 17% (?) of its portfolio was Venture Capital last time I looked).

SLP is a buyout fund. Leveraged Buy-Outs. There are trillions going into that asset class -- called more generally Private Equity (VC funds are also PE funds). However the opportunities are much bigger. SLP has focused on tech deals in the buyout space - which historically no one would touch because of the volatility of the product cycles, etc. (I am not aware that SLP has stopped its tech focus - someone may correct me).

The main problem is: at the projected fund size, actually finding the right opportunities. Ticket size will be c. $1bn equity per deal (thus 25 deals in the portfolio) w average deal size therefore (equity = 40% of cap structure) $2.5bn. That's a decent deal, even in the LBO world. They will all be acquired in competitive auction situations with investment bankers on the other side skilled at extracting value from the bidders.

I agree it's not a great time to be investing in LBOs *but* as the economy & markets worsen, and interest rates rise, it becomes a better time-- to invest cheaper now, to sell at higher prices and valuations in 3-5 years time. The fund will be raised, and may be able to deploy capital at the best of times: when the Enterprise Value to EBITDA multiples are lower (that's the standard metric for valuation, it's often inappropriate but it's widely used as a "first pass" rule of thumb and earnings/ EBITDA expectations are depressed.

There will be a lot of listed software cos that will get taken private now. Their share price is in the tank, sell-side equity analyst coverage of smaller stocks has been trimmed to almost nothing, there's no point undertaking the costs & risks (especially to Directors) of a public company.

The future is tech. The time to buy into tech is far more now (when the stocks are down say 30%) than it was a year ago at the peak of the exuberance.
BitTooAggressive
Posts: 349
Joined: Tue Jul 13, 2021 3:15 pm

Re: Private Equity: Silver Lake Partners - Fund VII

Post by BitTooAggressive »

James123 wrote: Thu May 12, 2022 8:34 am Hi,
Most my portfolio has been passively invested in Index funds. Recently my banker suggested investing in Private Equity: Silver Lake Partners - Fund VII. On google search the shop seems to have good reputation has given good returns.
I will greatly appreciate input from people who have experience in investing in private equity. With the market downturn, there might be opportunities for private equity fund that are not open to retail investors. I will also appreciate input from people who might have experience with Silver lake partners.
Warm regards.
Your banker suggested? I would not take investment advice from my banker or insurance agent. :x
LFS1234
Posts: 329
Joined: Fri Feb 08, 2019 4:13 am

Re: Private Equity: Silver Lake Partners - Fund VII

Post by LFS1234 »

Valuethinker wrote: Tue May 17, 2022 3:31 am
LFS1234 wrote: Mon May 16, 2022 11:55 pm 2022 to me smells quite a lot like 2000.

According to the below link, venture capital investment in the US skyrocketed from $23 billion in 1998 to $119 billion in 2000, before plummeting back to $16 billion in 2002. Performance-chasing is live and well at the highest levels of finance as well as at the lowest, and the industry makes a great living off of its AUM fees alone. There is no incentive for the VC industry to contain its optimism; the party ends when it runs out of suckers with money to burn.

https://www.statista.com/statistics/277 ... ince-1995/

The fact that OP is being approached for a (presumably) relatively minor investment suggests that the VC fund is having trouble raising the capital it was hoping for from much larger, deeper pocketed institutional investors. This could be either because the institutional investors have backed away, or because the magnitude of funding currently being sought has overwhelmed even that of recent-year records.

The below article ("For Tech Startups, the Party is Over") appeared in yesterday's Wall Street Journal:

https://www.wsj.com/articles/for-tech-s ... 1652710330
Silver Lake Partners are not Venture Capitalists.

The Fund won't be investing in early stage tech cos, AFAIK. I agree with you that the VC market looks like a total bubble. Far, far too much money has gone in at too high valuations, far too few VCs provide any genuine Value Add. Swensen takes you through the math - you were better off in the Nasdaq index unless you were with the top 10 or so funds - and investments in those are invitation only (by implication Yale is in those, as 17% (?) of its portfolio was Venture Capital last time I looked).

SLP is a buyout fund. Leveraged Buy-Outs. There are trillions going into that asset class -- called more generally Private Equity (VC funds are also PE funds). However the opportunities are much bigger. SLP has focused on tech deals in the buyout space - which historically no one would touch because of the volatility of the product cycles, etc. (I am not aware that SLP has stopped its tech focus - someone may correct me).

The main problem is: at the projected fund size, actually finding the right opportunities. Ticket size will be c. $1bn equity per deal (thus 25 deals in the portfolio) w average deal size therefore (equity = 40% of cap structure) $2.5bn. That's a decent deal, even in the LBO world. They will all be acquired in competitive auction situations with investment bankers on the other side skilled at extracting value from the bidders.

I agree it's not a great time to be investing in LBOs *but* as the economy & markets worsen, and interest rates rise, it becomes a better time-- to invest cheaper now, to sell at higher prices and valuations in 3-5 years time. The fund will be raised, and may be able to deploy capital at the best of times: when the Enterprise Value to EBITDA multiples are lower (that's the standard metric for valuation, it's often inappropriate but it's widely used as a "first pass" rule of thumb and earnings/ EBITDA expectations are depressed.

There will be a lot of listed software cos that will get taken private now. Their share price is in the tank, sell-side equity analyst coverage of smaller stocks has been trimmed to almost nothing, there's no point undertaking the costs & risks (especially to Directors) of a public company.

The future is tech. The time to buy into tech is far more now (when the stocks are down say 30%) than it was a year ago at the peak of the exuberance.
These buyout funds have the following characteristics:

1. Active management
2. Huge scale
3. Leveraged
4. Fundholders are subject to capital calls
5. Funds are not marked to market; difficult to make apple-to-oranges comparisons
6. Opportunities for window-dressing

Many of these features are attractive to large tax-free institutional investors – they can put a lot of money to work and still be diversified, they don’t have to be hands-on for many years after making the investments, dealing with capital calls is relatively easy, income taxes are not a problem, and the nature of the funds make it possible for them to “postpone looking bad”.

For the individual investor who doesn’t have a “family office” or specific valuation expertise, these investments don’t seem very attractive to me. Giving up liquidity for a decade comes at a large opportunity cost and should require substantial compensation. Capital calls can be a big burden, and if this requires that large cash reserves be kept at all times, the negligible returns of these have to be taken into account. Tax effects can be considerable, arise with little notice at inconvenient times, and be difficult to deal with.

The 2012 Kauffman Venture Capital report which was referenced upthread is a worthwhile read for anyone considering PE fund investments:

https://www.kauffman.org/entrepreneursh ... -he-is-us/

Buyout funds’ success is dependent in part on low interest rates and high exit prices. When buyout companies can exit into exuberant public markets, returns can look great. (The returns of those who buy those IPOs, however, may end up being far from great). In recent years, all PE funds have benefited both from levitating public markets and from extraordinarily low interest rates.

Regarding “the future is tech” – this has been true for centuries, but it does not automatically follow that those who invest in tech become rich from it. Most of the benefits of technology flow through to the customer/consumer rather than to the investor, who finances a large number of failed ventures for every successful one. A few companies have enjoyed extraordinary profitability for extended periods of time, but relatively only a very few. Many companies (e.g. the gilded age monopolies, RCA, GM, and IBM) once had seemingly unassailable market positions, but eventually lost those positions. Some of the FAANGs are enjoying similar positions today, but are these sustainable for the next half century? Or will competition, regulation, or fate intervene?

As an individual investor (without a family office), this thread has helped me come to the conclusion that I am uninterested in investing in PE funds under any circumstances – the long-term commitment alone is way too much of a negative, and the capital calls, 2-and-20, and conflicts of interest just add to these negatives.

I am skeptical that most PE funds will outperform significantly over the next decade. The Kauffman report claims that they rarely have done so in the past, notwithstanding their (misleading) published metrics. For individuals, it is much easier to just buy stocks – individually or as part of an index – when markets are depressed. Fund managers generally don’t have the luxury of making most of their investments when markets are despondent; they typically have to commit the majority of their funds when prices are high and enthusiastic investors are showering them with money. The individual investor, unlike the bloated funds, has the option to wait for better opportunities.

Regarding SaaS companies in particular, I have not followed these but am aware that they have been quite popular investments with a lot of money thrown their way. I don’t see why these won’t at some point be forced by competition and innovation to accept more normal margins. That has been the fate of just about every other once-highflying industry, and the exceptions – natural monopolies – generally end up being regulated. Some may still be great businesses, but their returns will no longer be exceptional.

Caveat: Although I don’t think so, I cheerfully admit that I might be wrong about any or all of the above. I greatly appreciate the posts of the many thoughtful contributors in this thread and others. Their thoughts and experiences help me improve mine.
Post Reply