| If you spend enough time on Wall Street, you learn | | | | Here's the catch... when you hand these private |
| that there are two types of investors. Smart money, | | | | equity managers your money, they require you to |
| and dumb money. The smart money is always ringing | | | | leave it there for 7 to 10 years or more! These |
| the cash register and pocketing millions of dollars. The | | | | investments aren't like stocks. You can't trade in and |
| dumb money... well... they're not. | | | | out of them every day. If you need to sell your |
| There's a little known third group of investors who | | | | investment for some reason, you need to find |
| don't fit in either category. | | | | someone to buy it. |
| They're not dumb, but they realize they're not smart | | | | Normally, when a long term investor needs to exit a |
| either. (Who said self awareness wasn't good?) So, | | | | private equity investment there's a reason... like they |
| they do the next most logical thing... they follow the | | | | need cash. Because of that the buyer gets to dictate |
| smart money. They invest only where the smart | | | | the terms of the deal and write his own check! Nice |
| money invests. | | | | work if you can get it. |
| The hardest part about that strategy is figuring out | | | | It's a lot like the real estate market today. If you |
| where the smart money is investing. | | | | have a big wad of cash and want to buy a bank |
| Every so often we get a glimpse. Today, we got | | | | owned house, you can name your price. Same thing |
| such a glimpse at what some of the smartest on | | | | for Goldman with the secondaries fund... If somebody |
| Wall Street are thinking. Think of it... being able to | | | | needs to sell, Goldman will be happy to buy... at forty, |
| invest alongside some of the smartest investors in | | | | fifty, or sixty cents on the dollar. (I told you these |
| the world. | | | | Goldman guys were smart.) |
| What happened? | | | | Plus, they only buy when the underlying investments |
| Goldman Sachs (GS) announced they'd raised $5.5 | | | | look good. |
| billion for a new investment fund. The fund is called | | | | Remember, private equity takes investment dollars |
| GS Vintage Fund V. It's a dedicated private equity | | | | and buys companies... they often make them more |
| secondaries fund. | | | | efficient and then look to resell them for big profits. |
| Ok, two questions... Why follow Goldman? And | | | | So before Goldman will buy, they'll look at the |
| what's a secondaries fund? | | | | underlying investment... if they like what they see, it's |
| First, Goldman. The name should send shivers up your | | | | a chance for them to make even more money. |
| spine. When I was in banking, we used to joke that | | | | So how can we make money off this? |
| their business cards landed with a thud... while ours | | | | Unless you happen to have a few hundred million in |
| just floated. They carried more weight in the banking | | | | cash lying around, buying secondaries directly is going |
| world than any other firm out there. | | | | to be a bit difficult. Ok... impossible. |
| The entire firm is filled with the best and brightest | | | | But Goldman is shining a light on one part of the |
| and they all know how to make money. | | | | market that deserves a second look. |
| Think about recent history... Goldman was smart | | | | The asset managers. |
| enough to get into mortgage backed securities, | | | | Think about it. The investments many of these |
| sub-prime loans, and CDOs as the industry was | | | | private equity funds have made are in solid |
| getting hot (they made lots of money). Then they | | | | companies. That means when prices return to normal, |
| were smart enough to see the bubble and get out. | | | | buyers will see these investments pop in value. But |
| They even shorted parts of the industry before it | | | | let's peel back the onion one layer more. |
| peaked (which made them even more money). I | | | | The asset managers also benefit when the underlying |
| don't know about you, but that's a pretty smart | | | | investment does well. So the big score for guys like |
| move in my book. | | | | KKR and Blackstone comes when they make big |
| Think of all the money you could have made by | | | | money for their investors. Right now, these funds |
| following their moves. Clearly, Goldman is one of the | | | | are being shoved into the wood chipper with the rest |
| "smart money" investors. | | | | of the market. Just look at the charts on The |
| So, what's this secondaries fund they just | | | | Blackstone Group (BX), and Och-Ziff Capital |
| established? | | | | Management Group (OZM). |
| A secondaries fund is a pool of money set up to buy | | | | As the market rebounds, so will their investments... |
| out other investments in private equity funds. I know | | | | and that means big returns for the money managers. |
| it sounds complicated... but think of it this way. | | | | And don't forget Goldman in all of this. If they're |
| If you're a giant pension fund, insurance company, or | | | | right, they stand to profit handsomely. Take a look |
| college endowment, you need to invest your assets. | | | | at these asset managers... especially Blackstone. I can |
| One big way to invest is through private equity. | | | | see them driving big gains in the next few months |
| Think of big investment funds like KKR, Blackrock, | | | | and years as the market recovers. |
| and The Carlyle Group. | | | | |