Subscribing to the adage, “give a man a fish and he will eat for a day, teach a man how to fish and he will eat for a lifetime,” Financial Poise offers its audience objective and plain English education about investing. If you are looking for recommendations on particular stocks or looking to make a quick buck trading, you came to the wrong place. Financial Poise teaches investors about the fundamentals of investing for the long term.
In his book Private Capital Markets (Wiley, 2011), Rob Slee recognizes five stages of company growth, from an investment perspective: (1) seed, (2) startup, (3) early, (4) expansion, and (5) later or mature. This is not the only way to define the stages of a private company, but it’s the most useful for our purposes at AIMkts. The following table shows how we loosely define them, along with the investors who align with each stage. Below the table are further explanations.
Individuals invest in tangible assets (also called hard assets) because they are generally considered more stable in value than most commonly traded sovereign currencies and securities. When the world economy falters, many investors move into tangible assets, such as gold, because they are perceived as safe havens during difficult economic times.
Calculating Risk Adjusted Return is not simple. It involves making assumptions about a risk-free rate of return, selecting portfolio and market benchmarks, figuring the standard deviation of return, and/or using “beta” (a separately calculated figure that describes the tendency of an investment to respond to marketplace swings). Unless you’re a financial analyst, you might think that’s more than you need to know. But for those who are still curious, I’ll provide an simplified explanation, and then give you some resources for studying RAR further.
According to U.S. securities law, only accredited investors may invest in private equity, venture capital, hedge funds, and private placements. Regulation D, Rule 501 of the Securities Act of 1933 states the accredited investor definition as: (a) an individual (or married couple) whose (joint) net worth exceeds $1 million, excluding the value of the primary residence; or
A venture capital fund is a professionally managed pool of capital that is raised from public and private pension funds, endowments, foundations, banks, insurance companies, corporations, and wealthy families and individuals. Venture capitalists (VCs) generally invest in companies with high growth potential that have a realistic exit scenario within five to seven years.
A concise definition of hedge fund is elusive. It is more useful to study various successful hedge funds and their strategies than try to roll them up into a singular definition. Start by studying A.W. Jones & Co. from the 1960s; then Steinhardt, Fine, Berkowitz in the sluggish 1970s; then George Soros’s bank-breaking Quantum Fund and Julian Robertson’s swashbuckling Tiger Fund in the 1980s.
Hedge funds have earned a grandiose reputation, thanks to the spectacular success of some funds and the tumescent wealth of some fund managers, and the equally spectacular failures of some other (and even some of the same) hedge funds and the humiliations that followed. Some high-profile hedge funds grew so large in the 1990s that they could disrupt markets and economies; one catastrophic failure, that of Long-Term Capital Management (LTCM) in 1997-98, nearly caused a global crisis.
Private equity and venture capital firms invest in different companies and for different reasons. In simplest terms, private equity firms invest money into private companies.* Venture capital can be viewed as a segment of private equity, at least from an academic point of view.
The modern private equity fund was invented and polished in the 1960s and 1970s in the USA. This asset class comprises venture, growth, and mezzanine capital, leveraged buyouts, and distressed debt.
In the world of middle-market buyouts, non-traditional funds (or fund-like groups) are playing an increasingly active role in the private equity domain. They include fundless sponsors, family offices, and even limited partners making direct investments in businesses. In this article, we will explore differences between fundless sponsors and more traditionally structured private equity funds.