http://online.wsj.com/article/SB1000142 ... 78018.html
In the latest effort by private-equity firms to broaden their customer base, Carlyle Group LP is letting some people invest in its buyout funds with as little as $50,000.
Historically, access to these funds has been limited to pension funds, endowments and individuals wealthy enough to commit millions of dollars for years at a time.
Private-equity firms are seeking to tap into the collective wealth of individual investors as pension funds—the cash cow that for decades has filled their coffers—face an uncertain future.
Some private-equity executives long to offer their funds to typical workers through 401(k) savings plans, calling access to that pool of money their "holy grail."
Carlyle's standard fees of 1.5% for managing money and 20% of profits will apply to the fund, as will a fee of about 1.8% that will pay Central Park Group to manage the fund and brokers to sell it to investors.
3.3% annual fee and 20% of profits. Yuk! Coming soon to your 401k plan. Yikes!
Be Afraid! Be very afraid.
Just to reiterate.
Standard industry terms are '2 and 20' (2% + 20% carried interest usually above a threshold of 8% pa returns on the carry).
Larger funds 1.5%.
So as an individual investor if you are doing measurably worse than that you'd have to be very lucky on the fund and manager selection to outperform.
Note there *is* manager persistence in PE-- past funds that have been top quartile, new funds from that manager tend to stay top quartile (funds are raised every 2-3 years with a lifetime of 10 years).
A la REITs vs RE LLPs, there is a way around this-- buy listed PE funds. There are a number listed in London (google Private Equity Investment Trusts) and some are 'fund of funds' (eg Standard Life PE). Also there are now a couple listed in the US I think.
With institutional LPs you are 'drawn' as to your commitments when the fund makes significant purchases of target LBOs. You commit $10m up front, you probably make that investment in $500k-1m chunks every 6-12 months over the 5 year investment period of the fund. Distributions are then made when the fund sells an investment-- proceeds less carry are paid back to the Limited Partners. Fund life is usually 10 years (extendable to 12 by a vote of the LPs).
If you default on a drawdown then you lose all rights to your existing money (or at best case, you can only get your money back).
The high IRRs PE funds achieve for investors are critically dependent on that-- if you invested all your money up front, then you'd get a lot lower IRR.