With four businesses under his belt, two of which he sold for megamillions, 33-year-old Michael Lazerow qualifies as a serial entrepreneur.
Therefore, he says, he's well positioned to invest in one of today's most coveted asset classes: private equity. It involves companies that seize other companies, spruce them up and (fingers crossed) sell them for a profit years later. The investment category regained its popularity in 2006 when there were more than 1,000 announced private-equity deals in the U.S.
"Most of the money is made in finding the right deal," says Lazerow, whose newest venture, Buddy Media, is a New York City application development firm that serves social networking Web sites. "It helps if you have experience in the industry you
While Lazerow makes it seem accessible, private equity has traditionally been, well, private. Its participants include mostly accredited (i.e., more than $1 million in the bank) and in-the-know individuals, as well as institutional investors, pension plans and university endowments with thousands if not millions to offer. In the past three years, Lazerow has bet on eight deals from $100,000 to $150,000 each.
Don't Have Millions?
Good news: The members-only asset club has opened its doors -- albeit ajar -- to include investors who don't need to be accredited and who don't want their money locked in for years. In July,
Vista Research and Management issued
The Listed Private Equity Plus Fund, an
open-end mutual fund that lets investors enter for as little as $1,000. Rating agencies Morningstar and Lipper track the fund.
"That's great news for us," says Steven Samson, the fund's chief investment officer. "As a mutual fund, it's important to build an investment record. It bodes well for this asset generation."
Jaron Nunez, who runs Avalon Home Mortgage in Newport Beach, Calif., has tucked away 3% of his retirement portfolio into LPEAX. He likes the mutual fund because his risk tolerance is low. If his investment drops 8% to 12%, he'll likely re-evaluate his position, he says. "I'm knocking on wood."
For a more liquid private-equity investment vehicle, the
PowerShares Listed Private Equity Portfolio tracks the Red Rocks Listed Private Equity index, a composite of more than 30 publicly traded companies tied to private equity.
PowerShares CEO Bruce Bonds says, "By and large,
Red Rocks is based on the concept of listed private equity becoming a greater category in the future." Its shares are traded on the American Stock Exchange.
The Pure Plays
In 2007, a few private-equity firms IPO'd on the
New York Stock Exchange
, among them
. However, experts say risk-averse investors should beware.
Although these firms must disclose their financials with the
, they still lack a significant degree of transparency. "
Blackstone and Fortress are still buying companies that are not public, and they don't have to tell you much about them," says Steve Kaplan, a professor of finance and entrepreneurship at the University of Chicago.
Legislators are also pushing to raise the tax rate on investment partnerships from 15% to 35%. The move may affect earnings and, ultimately, a private-equity firm's stock. Kaplan recommends "being cautious rather than aggressive."
Farnoosh Torabi joined TheStreet.com TV in July 2006 as the site's first official video correspondent. Previously, Farnoosh was a business producer and on-air reporter for NY1 News, Time Warner's 24-hour news channel in New York City. Farnoosh is a regular columnist for AM New York and has written for Money, Time, New York Daily News and Newsday. Farnoosh is a graduate of Pennsylvania State University, with a degree in Finance and International Business and holds a M.A. from the Columbia School of Journalism.