374: Private Equity: Passive, Profitable Investments You’ve Probably Never Heard Of
BiggerPockets Money Podcast
BiggerPockets
4.6 • 2.9K Ratings
🗓️ 16 January 2023
⏱️ 58 minutes
🧾️ Download transcript
Summary
Private equity is a term often left undefined. Ask most people if they’ve heard of private equity, and they’ll say yes. But ask them to explain what it is or how it works, and most Americans will struggle to come up with even a sentence. The industry of private equity investing is shrouded in mystery, but it probably shouldn’t be. If you know what private equity is and how to invest in it, you could take home passive income that beats the stock market and real estate investing with none of the headaches or short-term panic of either.
This simple-to-understand but constantly overcomplicated industry could make you better returns, with far less work, investing in businesses you already know and trust. This is precisely what Sachin Khajuria’s book, Two and Twenty: How the Masters of Private Equity Always Win, is all about. As a former partner at one of the world’s largest alternative asset firms with over two decades of experience, Sachin can explain the ins and outs of private equity better than anyone.
Sachin will demystify the often shadowy world of private equity in this episode. He explains why it’s such a lucrative business and how it’s coming close to matching the same firepower as the public markets many of us invest in. With potential returns far higher than traditional assets, Sachin makes a strong case for why you should be looking into private equity now before the masses find out about it and flood the market.
In This Episode We Cover
Private equity explained and the simple yet highly profitable business model behind it
The two and twenty rule and why private equity firms are designed to maximize your money
Private equity returns and whether or not the high profits are worth the long time horizon
The “unloved” businesses that have seen massive growth thanks to private equity
Rising interest rates and how this could affect the value of private equity investments
The businesses you already buy from that are owned by private equity
How to find and invest in private equity even if you’re not a mega-millionaire
And So Much More!
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Transcript
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| 0:00.0 | Welcome to the Bigger Pockets Money Podcast where we interview Sachin Kajuria and talk about private equity. |
| 0:06.4 | Hello, hello, hello, my name is Mindy Jensen and with me as always is my private equity back to Coho's Scott Change. |
| 0:13.0 | Thanks Mindy, great to be here and today we're not bigger pockets for private pockets. |
| 0:18.4 | Is this better than bigger private? |
| 0:20.5 | That's right. |
| 0:21.2 | Bigger equity? |
| 0:24.1 | Should we not even say that? |
| 0:26.0 | That's great. |
| 0:26.7 | Mindy and I are here to make financial independence less scary, less just for somebody else to introduce you to every money story because we truly believe that financial freedom is attainable for everyone no matter when or where you're starting. |
| 0:37.6 | Whether you want to retire early in travel the world, go on to make big time investments in assets like real estate or start your own business. |
| 0:43.8 | We'll help you reach your financial goals and get money out of the way so you can launch yourself toward your dreams. |
| 0:49.4 | Love it. |
| 0:50.0 | Well, before we get into it, we're going to talk about private equity and I know that private equity has, I'm going to use two words depending on your viewpoint, either a stigma or a mystique attached to it for a lot of folks. |
| 1:02.2 | And we want to demystify it today and make it more accessible. |
| 1:06.1 | Just to introduce the subject, the essence of it is this. |
| 1:10.0 | Folks are going to raise a pool of capital. |
| 1:13.1 | Let's call it a billion dollars or three hundreds of millions of dollars and they're going to use that capital to invest in businesses. |
| 1:19.7 | They're going to buy maybe 10, 15, 20 businesses and their goal is to grow those businesses, to cash flow them and then to sell them in order to produce profit. |
| 1:29.2 | And done well over a five to seven year period, they could double a billion dollars or three hundred million dollars or hundreds of millions of dollars and make a lot of profit for the people who invested with them and then earn a percentage of that profit. |
| 1:40.8 | So they might earn two and 20, two percent of the one billion dollars might go to fees that they charge every year to pay their staff to pay their salaries, those types of things. |
| 1:51.0 | And then again, the 20, the 20 percent of the profits on the incremental billion that they are in. |
| 1:56.0 | So it's a very lucrative way to make money and a very powerful way to build wealth. |
... |
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