During my days as a hedge fund manager, friends would often ask me if they could invest in the private equity market with us.
“You’re not qualified to invest in our fund.”
That’s the answer I had to give them.
It was frustrating because the fund I worked for had an excellent track record, and I would have loved to help my friends grow their retirement wealth.
But because our fund was organized as a hedge fund, part of what the SEC classifies as private equity, my friends couldn’t invest.
Heck, even I wasn’t qualified to invest in the fund I helped manage!
Private equity funds come in many different shapes and sizes.
The best ones use strategies that take advantage of key opportunities that can boost their clients’ wealth.
And in many cases, hedge funds reduce the overall risk for their clients so they’re not hurt by a big pullback like the one we had this spring.
Unfortunately, you have to be an accredited investor to invest in a private equity fund.
That means you need at least $1 million to invest or two years of income over $200,000. And this requirement is what locks a lot of people out of this lucrative market.
A new proposal from the Department of Labor is set to open the door this year, allowing regular investors access to the private equity market.
And today, I want to show you the best way to profit from this new regulation.
A New Option for Your 401(k) Account
If you’ve been part of our Rich Retirement Letter family for some time, you know that I’m a big believer in free markets.
I believe we should all have an even playing field and that the investment opportunities available for the most affluent should also be available to the everyday investor.
Sure, there should be disclosures so that everyone knows the risks and potential benefits for any position they take.
But I don’t believe you should be locked out of an opportunity just because you don’t have a million dollars in the bank.
The new guidelines from the Department of Labor take a step in the right direction by allowing some 401(k) custodians like Schwab and Fidelity to offer certain private equity investments.
This could be a game-changer for many retirees!
After all, private equity companies can profit from opportunities that simply aren’t available or practical for individual investors.
For example, many private equity funds invest in startup companies that aren’t publicly traded yet.
Think about companies like Airbnb and SpaceX. You can’t buy shares of these exciting growth companies as an individual investor.
But many private equity funds already own pieces of these companies. And people who invest in these private equity funds can profit from their growth.
In addition to investing in companies that aren’t publicly traded, many private equity firms buy out entire companies.
The firms then put new management teams in place, adjust the company’s strategy and ultimately sell it for much more than their original purchase price.
I’m sure you can see why investing in private equity funds can be a great opportunity for your retirement account.
As long as you understand the risks and keep a balanced portfolio of course.
My Favorite Way to Profit From the Private Equity Money Flow
When it comes to picking specific private equity funds for your 401(k), the jury is still out.
The guidelines are still brand-new and not many 401(k) companies have started offering these new options for investors.
So I’m not going to recommend a private equity fund for you to invest in today.
Instead, I’ve got a stock for you that has the potential to dramatically benefit from these new regulations.
The Blackstone Group Inc. (BX) is a private equity company that manages a wide range of private equity funds. All-together, the company manages $571 billion in assets for its customers.
Blackstone will naturally benefit as 401(k) retirement accounts begin to invest in private equity funds because BX is the premier private equity manager in the United States.
By opening its funds up to 401(k) investors, Blackstone will tap into an entirely new market for selling its funds.
And as I’m about to show you, Blackstone has an incredibly lucrative business model that will profit from this new source of customers…
Have you heard of the “two and twenty” arrangement?
Most private equity companies have a schedule that charges a management fee of 2%, along with an incentive allocation of 20%.
Here’s how it works…
When a wealthy investor puts $1 million into a fund with the two and twenty fee structure, they’re automatically charged 2% of assets each year.
This means companies like Blackstone get to keep $20,000 for every million that their customers invest — every single year!
The management fee is charged regardless of how well the fund performs. So Blackstone will always have a reliable source of income from the cash invested for customers.
And private equity companies typically get to keep 20% of all profits that their customers make.
Let’s say the $1 million our wealthy customer invests generates an annual return of 25%. That’s a quarter-million dollars!
Well because of the two and twenty arrangements, Blackstone would be able to keep 20% of that profit — another $50,000.
Now you can see why private equity companies like Blackstone can be so profitable. They get to keep a large piece of any money they make for their customers.
Today, you can buy shares of BX for a bit over $51 per share.
By investing in BX, you’re essentially signing up to get your share of the two and twenty fees that Blackstone charges customers.
One of the reasons I love investing in BX is that the company pays a generous portion of these profits to you as an investor.
Over the past year, BX has paid investors $1.86 per share in dividends — which adds up to a 3.6% dividend yield from where the stock is trading today.
Over the next year, I expect those dividends to be even higher as new 401(k) money is invested in the funds BX manages, leading to new lucrative fees for the company.
By investing in BX today, you’re tapping into the new wave of retirement money flowing into the private equity market and locking in those profits for yourself!
Just another great way to grow your wealth so you can live your Rich Retirement.