From Barron's Penta:
Invest Like a Billionaire
When it comes to investing in private companies, the superrich are increasingly taking matters into their own hands. They’re shunning private-equity funds and investing directly in private companies, drawing on their own entrepreneurial experiences and their network of similarly successful business owners.*...More stunning: The business is on pace to return all the cash Buffett spent taking it private by the end of this year....
A recent survey by McNally Capital, a Chicago-based advisor to family offices, found that 77% of ultra-wealthy families prefer direct deals over private-equity funds, up from 59% in 2010. The survey covered 100 families, with a median net worth of $1 billion. The overwhelming reasons cited for investing directly in private companies was to “leverage my experience and knowledge” and “achieve outsized returns.”
Bob Casey, senior managing director of research at the Family Wealth Alliance, cites another reason. “Private equity funds and fund of funds are increasingly seen as overpriced, lacking transparency, liquidity, and control, among other shortcomings,” he says.
According to the study, 52% of the families plan to complete at least two private deals this year and they’re eyeing 20%-plus annual returns for these investments over the next five to 10 years.
It’s clearly a rarefied realm. The most active families have investable assets in excess of $500 million and allocate as much as 20% to private companies, says John Rompon, managing partner at McNally Capital. The investments are, generally, in the $25 million to $70 million range and involve companies beyond the startup stage.
The pickup in the activity is catching the attention of some heavy-hitting advisory outfits. Top-notch law firm McDermott Will & Emery has set up a special practice to advise well-heeled families on how to structure direct investments in businesses. The new operation is an outgrowth of the firm’s work in estate planning and structuring of private-equity deals....MORE
