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| From the Editor: Worthy Notions |
Small is Beautiful
Dwight Cass
04/01/2004
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As Worth went to press, the investment staff at the $165-billion California
Public Employees’ Retirement System, one of the world’s largest and canniest
institutional investors, was preparing to announce that its private equity
portfolio had just passed a remarkable milestone: $5 billion in profits since
its inception in 1990. CalPERS’s investments, totaling over $19 billion, appear
to rank among the private equity industry’s most successful, and its
announcement came as a perfectly timed boon for the host of private equity firms
now seeking funds.
 Private equity firms often regale potential investors with
anecdotes like this. But none of us really compares with CalPERS in terms of
either financial resources or expertise. To keep our investment choices in
perspective, we need to understand if and how the success of institutions such
as CalPERS is relevant for individual investors like ourselves.
It turns out
not to be terribly germane. Few of us will denominate our private equity
investments in billions of dollars. A 30-percent allocation is at the high end
of prudent, financial advisors say, so even those with $1 billion in investable
assets should still only invest about $300 million.
Because of our more
modest resources, we must consider whether our investments will attract the
attention we demand from our fund managers. Will they answer our questions in a
timely manner? Are they willing to customize information briefings to suit our
needs? Will the red carpet they roll out for the likes of CalPERS be tucked away
when we visit?
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