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Private Equity: How to be a Successful Fund Manager

The worldwide investment pool for private equity is $3 trillion. Of that amount, roughly $1 trillion is actively looking for investment opportunities. At last count, there were 6,117 companies looking to invest in any project that can return a profit. They are hotels, restaurants, distressed securities, junk bonds, hospitals, apartments and Chinese companies to name a few. The sums of money invested are huge and come from endowments, foundations, private and public investors, pension funds, service companies, family offices and investors who are authorized to act on the behalf of others.

Competition and performance are your keys to success.

First, let’s look at some of the skills you need as a fund manger:
Personal qualifications.
· You must be a super, sophisticated salesperson. You are the standard bearer for your firm. Even though you may hire a cadre of fund- raisers, ultimately the investor will want to meet you and “size you up” so to speak. If you are just starting out, the inevitable question from an investor is: “Why should I invest $3 million in your company when I can invest it in one of the top ten funds?’ Here you must rely on your past experiences. Most often fund managers have managed portfolios or were traders with a successful track record.

 

The Art of the Deal.
· Now you’ve raise the capital you need. The next step, and this is the nutcracker, what do you invest in? That one decision will make or break you. You may hire a small band of analysts who search and find the best deals. Ultimately, the final decision rests on you. If you lose money you will be sacrificed on the altar of failure. If you make money you will be judged by how you rate compared to your peers. But that’s just the beginning. If you stop now you are finished. You’ve got to start the whole process all over again and set up a new and different fund.

 

On Site Managers.
· Many deals require specialists who will manage your property or investments. Here again, your savvy in picking the brightest and the best is crucial. Many deals start out winners, but unless they are closely monitored they can fall apart quickly. Remember if you buy a company hoping to improve the balance sheet, the investment must produce results otherwise you will lose your investors. These are unpredictable times and where you had hoped to resell the company in one or two years, it may not be possible to do so. Remember also, that this plan works best in a bull market. If the market turns sour, your company can start losing money and you’ll quickly find yourself out of business.

 

Back Office Personnel.
· You will need a staff of qualified accountants, lawyers and auditors who will translate your activities in clear, concise, readable formats.
· You will also need personnel who will communicate your results to your investors via website, email, and financial summaries.

 

Compensation.
· Generally, there are two main types of fund manager compensation. One is to receive 2 to 2.5% of committed capital. The other is to take a cut of profits (carried interest) that normally is 20%. This can taken yearly or deferred, depending on how the deal is structured.

 

Some closing comments. 
· Being a fund manger can be a lonely job. Unlike listed companies that are continuously evaluated against one another, you have no such guidelines. You are often a one-a-kind enterprise.
· You must always be looking forward to your next fund while keeping your present one afloat.
· There is no time off. You can’t just say: I’m going to wait until next year.” That’s a sure sign you are going out of business.

Continue reading latest main stories of private equity issues from the David Hand Crescent Point Asia and Crescent Point Private Equity info site, the robust emerging markets investment management and financial advisory firm primarily targeting in the Asia-Pacific and Middle East regions.

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