Damien Hélène, editor-in-chief ofAltaroc :
What would be your general recommendation for individual investors wishing to invest in private equity?
Darren Foreman, Former Director of Private Equity for PSERS :
I'd tell them that private equity should definitely be part of their portfolio, as it's a very good diversifier to stock market or real estate investments. It's both easy to access and reliable, whether in terms of qualifications or ability to meet minimum requirements.
D.H.: Do you recommend investing through a feeder fund or a fund of funds managed by a professional team?
D.F.: You can turn to a feeder fund, but that requires some work. If you have the time, you can do it. A fund of funds is a centralized vehicle that takes care of everything: administration, due diligence and so on. It's much more convenient for individual investors.
D.H.: How do you manage to invest with the best private equity firms?
D.F.: It's very difficult. That's why you need to turn to professionals, especially to carry out due diligence before investing in any fund.
Due diligence is very complex, because the information is private. You have to meet the managers and executives of the portfolio companies to assess the GP's seriousness. Sometimes, you can also access an opinion consultation on its commitment. It's only with all this information that you'll know whether it's a manager you should turn to or avoid.
Secondly, there is so much demand for access to the best private equity funds around the world, that it's essential to have professionals to build a relationship with them. That's how you'll find out about the next fundraising round and succeed in participating.
D.H.: What is the minimum investment required to access the best private equity funds?
D.F.: It depends on the size of the fund. For the smaller ones, you can get in with $5-10 million, although the bigger ones may let you in at those levels too. With 5-10 million, you can already commit to a serious fund. At PSERS, we'd sometimes commit to $15 million, sometimes to $200 million or more.
D.H.: What return can you expect from a portfolio specializing in growth and buyout in terms of money multiple and return on investment?
D.F.: Over the long term, we can expect an additional 300 basis points over the stock markets. For me, with a buyout fund, you can have a yield of 10-12% and a MoM of 1.9. A lot of people can already be happy with that. We can expect a little better for growth equity. Perhaps a yield of 12-14% and a MoM of just over 2.
