What are the pros and cons of private equity and investment banking?
Private equity as a job / career? I’ll go anonymous so I can be a little more playful with my answer.Pro:You can make amounts of money disproportionate to the amount of effort you put inCon:You can lose a lot of moneyPro:It is a meritocracy that doesn’t care who you are or where you come from as long as you’re sharp, persuasive, and skilledCon:… and tall, white, male, educated, well-mannered, and good lookingPro:It rewards the nonconformist, the person who thinks different and sees new angles on thingsCon:As long as you nonconform in the right way, and those angles don’t involve fraud, theft, deception, or other legal and regulatory violations. Truly, most of the really lucrative strategies that nobody else is doing are illegal, that’s why they’re illegal and why nobody is doing them.Pro:There is a lot of alcohol, schmoozing, and no drug tests. What you do on your own time is your own business.Con:There is a lot of alcohol, schmoozing, and no drug tests
What are the pros and cons of becoming a registered investment adviser (RIA)? Are there restrictions private equity deals like real estate?
I currently work at a RIA and have experience at broker dealers. I understand the differences very well.The cons are that you have to give up commissions unless you are a hybrid shop and retain your service 7 license. For some people this is not ideal since most of their business is via commissions. The hybrid model can work, but it can also restrict what you can do. You would have 2 compliance departments instead of one so the more restrictive one would be your issue. If you are RIA only, then you should have fewer problems with this request.Another con is you will be a fiduciary. This is a high level of responsibility which brokers do not have. While this can be a good thing if you are ethical, it is a high standard to live up to, so make sure you understand your requirements.The Pros are that you are not limited to what you can invest in. The only restrictions are in what your firms compliance allows and what your ADV restricts or discloses. If you are creating your own firm, there doesn't have to be limits on asset types. We invest in all sorts of Alternative Investments: dressage horses, tax liens, private mortgages, real estate, air space rights, fishing rights, intellectual property, sports franchises, livestock, and more. The world is your oyster.The problem will be providing due diligence and risk management for those assets. If you are competent to do that, then a RIA is a great way to offer those services. If you need assistance with this type of risk management, we do offer it to other advisors.Reach out if you have more questionsI hope you found this helpfulKirk Innovative Advisory Group - Wealth Management
What are the pros and cons of having a private banker (through Citi, JB, etc.)? I'm an entrepreneur and have been investing for about 10 years. I have a few million in cash and a few million in real estate. Why should/n't I get a private banker?
Pros: Private bankers can hold your hand through turbulent markets.Private bankers often provide financial planning advice like how much can I afford to pay for a house.Private bankers can introduce you to expert estate planners and tax advisors (I wouldn't use the private banker as the tax advisor because that is not their expertise).Private bankers can offer mortgages and lines of credit at very attractive interest rates and with much faster turnaround than typical sources of credit (thank you Alexey for this suggestion)Cons:Private bankers often claim to provide access to outstanding alternative asset managers like Hedge Funds and Private Equity, but the best alternative asset managers don't like to have private banker fund of funds invest in their partnerships. As a result you usually get adverse selection if you go with their recommendations which destroys value.Private bankers often offer to perform tactical asset allocation (TAA) on your portfolio. TAA underweights and overweights asset allocations derived from mean variance optimization (modern portfolio theory). The underweights/overweights to an asset class are a function of whether the investment manager believes asset classes are currently cheap or expensive, relative to one another. In my experience there are only approximately 20 managers who generate positive returns form this activity and 15 work for the premier university endowments and the remaining 5 work at hedge funds that are closed. Therefore this is almost always a value destroying activity.Private bankers' fees are usually 1 - 1.5% of assets under management. It's awfully hard to justify this fees based on the investment performance of the private bankers. There a number of new internet based entrants like my company Wealthfront that manage your portfolio using modern portfolio theory but at a tiny fraction of the fee (0.25%). Nick Shalek, formerly of the Yale University endowment did a great job explaining the merits of software based portfolio management in his TechCrunch post http://techcrunch.com/2012/06/17....In the end you trade off fees for handholding service. There's no right answer. You just need to determine what's right for you.
What are the pros and cons of working in private equity?
Pros:If you work at a 'generalist fund' you get to research, model and gain knowledge on various industries/sectors (pharma, financial services, O&G, retail, etc.), while dealing with very experienced managers/industry experts and learning from them.Hours and compensation are better than most consulting/Investment Banking jobs.There is a heavy financial and strategic component embedded in the job, which makes it very enriching. You get to transform a company by creating an investment thesis, designing a strategy/business plan for it and then get to see the gains or losses caused by its implementation.Cons:It's a very frustrating job. Most of the deals you analyze and get involved in don't close.
What are the pros and cons of private equity compared to stock market ? Which of both has the brighter future ?
There are key differences in the nature and structure of the private equity market and the public (listed) equity market.Private equity (PE) investing involves slightly lower risk compared with Venture Capital (VC) investing, since the business model of the company has already been established, the company has customers and traction. But PE investing involves higher capital allocation. The investment ticket size is quite high, running into millions of dollars. So clearly, it is not meant for small, individual investors.There is relatively low visibility on the timing of the exit, since there is no public market yet, for private companies. Exit for PE investors is usually via the IPO route, or in some cases, by way of sale to a strategic investor or another PE investor. Howsoever great the investee company might be, the PE investor may not be able to exit when he wants.Because of the risk involved, and since the PE investor usually enters at a much lower valuation than the company’s IPO, returns on PE investments can be quite high mostly, running into even 5x or 10x returns for the investor.In contrast, public (stock market) investments are simpler to execute (enter and exit), involve small ticket size, and a lot of info is out there in the public domain. It’s not that stock market investing is without risk, but one can spread the risk by investing into different sectors and companies. Returns can be good, provided one is careful with stock selection and the valuation /price at which stocks are purchased.Both PE and stock market investments can have a great future - for the savvy investor, at least.
What are the pros and cons of seeking investors for your startup?
Great question!It depends at what stage of the business life cycle you are at. Here are some pros and cons.ProsYou get cash in the bank, which gives you financial freedom and capital in hand to grow.You have an outside backer who sees the value and is willing to stand by you and help you grow. (Side note: not all investors are willing to stand by and help you grow. If they see this as an investment that with flop, they will use their energy in other places.)You can use the network effects of investors to get connected with the right partners and generate traction.ConsYou will have to give equity away in your company. The equity will vary depending on what stage the startup is at. For example, startups with just an idea can expect to give more than startups who already have traction and customers. It’s all correlated to the amount of risk.You will have a partner that you will have to report to. Depending on the deal structure, you may even need to get permission from them to proceed with certain ideas.If you get the wrong investor, it can hurt you more than help you. Investors are not just an ATM, they are also strategic partners.There are definitely more pros and cons, but these ones are the ones that stick out to me.Good luck!!