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Private Equity Investing Now Allowed in 401(k) Retirement Funds

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Re: Private Equity Investing Now Allowed in 401(k) Retirement Funds

#21

Post by wtvanhest »

charlesdm wrote: post #19
rabidrat wrote: post #8

Earlier quoted context omitted.

"how the rich got rich" is survivorship bias. Private equity is also how many people lost some or all of their life savings. I myself have "invested" tens of thousands of dollars in a few startups that have actually gone on to be moderately successful. But my equity has been so diluted that I will be lucky if I get back half of my original investment. The game is heavily biased towards the last shark in the pool, and…

Startup investing isn't private equity. Private equity is acquiring a profitable company with limited equity and a pile of debt, paying it down, and selling it at a profit.

Startup investing is a subset of private equity investing.

Pe includes many illiquid subcategories including real estate, LBOs, startup investing, even niche stuff like infrastructure investing

Re: Private Equity Investing Now Allowed in 401(k) Retirement Funds

#22

Post by bosswipe »

charlesdm wrote: post #19
rabidrat wrote: post #8

Earlier quoted context omitted.

"how the rich got rich" is survivorship bias. Private equity is also how many people lost some or all of their life savings. I myself have "invested" tens of thousands of dollars in a few startups that have actually gone on to be moderately successful. But my equity has been so diluted that I will be lucky if I get back half of my original investment. The game is heavily biased towards the last shark in the pool, and…

Startup investing isn't private equity. Private equity is acquiring a profitable company with limited equity and a pile of debt, paying it down, and selling it at a profit.

Or acquiring a company that has little debt and then piling debt on it to pay your acquisition costs back to the point where it goes bankrupt.

Re: Private Equity Investing Now Allowed in 401(k) Retirement Funds

#23

Post by jrs235 »

logicslave wrote: post #13
rabidrat wrote: post #8

Earlier quoted context omitted.

"how the rich got rich" is survivorship bias. Private equity is also how many people lost some or all of their life savings. I myself have "invested" tens of thousands of dollars in a few startups that have actually gone on to be moderately successful. But my equity has been so diluted that I will be lucky if I get back half of my original investment. The game is heavily biased towards the last shark in the pool, and…

Private Equity doesnt work like that, vc investing is a completely different game. If you want to stay middle class, continue investing like the middle class, i.e. etfs. If you want to move up, invest like those in the class above you do. I think the common knowledge about what kinds of risk the common man should be taking on are in some ways constructed to keep the "prestige" of finance. Its an industry built upon t…

By "invest like those in the class above you do" do you mean "manage the funds and siphon off a guaranteed percentage of the funds managed per year regardless of absolute or relative performance"?

Re: Private Equity Investing Now Allowed in 401(k) Retirement Funds

#24

Post by walshemj »

JMTQp8lwXL wrote: post #5

Private equity isn't an appropriate asset class for 401(k)'s. Public markets have a threshold for rules/regulations and reporting requirements. You don't want your retirement account to be a casino. You want companies that can provide stable, long-term growth of your portfolio-- so the money's there when you need it.

401k's are multi decade long investments and having some PE in the mix is not unusual.

Certainly all the big PF in the UK will have some PE - source I had an off the record briefing from a trustee on one of the biggest UK ones.

Re: Private Equity Investing Now Allowed in 401(k) Retirement Funds

#25

Post by lend000 »

JMTQp8lwXL wrote: post #5

Private equity isn't an appropriate asset class for 401(k)'s. Public markets have a threshold for rules/regulations and reporting requirements. You don't want your retirement account to be a casino. You want companies that can provide stable, long-term growth of your portfolio-- so the money's there when you need it.

"Investing" in publicly traded companies (most volume is just between people with no affiliation to the board and are not buying from company stock offerings) and especially holding an index fund is not really investing, in the sense that it does not allocate any resources intelligently or do anything to seed growing companies. It's simply an attempt to grow personal wealth that doesn't do anything to improve the economy. Many people deride HFT and day traders while failing to understand that just buying the S&P index is actually more economically harmful.

For all the faults in the industry, fundamentally, private equity provides a means to invest in private companies that can benefit from loans or funding rounds, while also offering a return on investment to smart private equity investors. There have been plenty of scandals with private equity firms taking advantage of bankruptcy laws in large companies, but the industry as a whole seeds companies of every size, even though you only hear about VC firms in the tech startup bubble.

Re: Private Equity Investing Now Allowed in 401(k) Retirement Funds

#26

Post by airstrike »

mywittyname wrote: post #14

Can we now subject large "private" firms to the same scrutiny that "public" have to obey? I always thought it was ridiculous that you could call a trillion dollar company with millions of shareholder, "private." From the sounds of it, this ruling handwaves away the inherent risk of investing in a company whose finances you have no visibility into by claiming that putting it into a diversified private fund is the same…

I believe the assumption is the fund manager is the kind of investor that will have the ability and resources to do proper due diligence before investing, contrary to the case of public companies that can sell stock to the average Joe

Re: Private Equity Investing Now Allowed in 401(k) Retirement Funds

#28

Post by JumpCrisscross »

wtvanhest wrote: post #21
charlesdm wrote: post #19

Earlier quoted context omitted.

Startup investing isn't private equity. Private equity is acquiring a profitable company with limited equity and a pile of debt, paying it down, and selling it at a profit.

Startup investing is a subset of private equity investing. Pe includes many illiquid subcategories including real estate, LBOs, startup investing, even niche stuff like infrastructure investing

> Startup investing is a subset of private equity investing

Not as the term is used in finance. Venture and PE are separate asset classes. Venture-like assets can become PE-like, in the same way private equity can become public equity. But PE is based on cash flows and leverage; VC is based on growth.

Re: Private Equity Investing Now Allowed in 401(k) Retirement Funds

#30

Post by ars »

This opens up some excellent tax avoidance strategies.

I'm assuming this is available also for IRA and Roth IRA. What you do is setup two transactions: One that will lose money in the IRA, and the other that will gain in the Roth IRA. (A straddle.) Make sure you execute both at the same time (if it's a thinly traded security you can end up trading with yourself, but that's not necessary).

Then sell, and do it again.

You effectively move money from IRA to Roth IRA. (And yes it's legal, I contacted the IRS and asked.)

In the open market you can only move a small percent at a time, but with private equity the gains and losses are much greater and you can effectively move all your money.

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