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 could consider a feeder fund, but it requires some effort. If you have the time, you can do it. A fund of funds is a centralized vehicle that handles everything: administrative tasks, 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 conduct due diligence investing in any fund.
due diligence a highly complex process because the information involved is confidential. You need to meet with the managers and executives of the portfolio companies to assess the general partner’s credibility. Sometimes, you may also be able to access an opinion survey regarding their commitment. Only with all this information can you determine whether a Fund manager is Fund manager you should turn Fund manager or, on the contrary, 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 kind of returns can be expected from a portfolio specializing in growth and buyout terms of money multiples and return on investment?
D.F.: Over the long term, we can expect an additional 300 basis points relative to the stock markets. In my view, with a buyout fund, we can achieve a return of 10–12% and a MoM of 1.9. Many people would already be satisfied with that. We can expect slightly better results for growth equity—perhaps a return of 12–14% and a MoM of just over 2.
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