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>They said this is partly because they get access to deals that don't hit the wider market and you need serious cash to get in the room to have that chat. This

>They said this is partly because they get access to deals that don't hit the wider market and you need serious cash to get in the room to have that chat. This is something I hear a lot and I just don't get. Are the people on the other side of those deals just...not greedy? After all, you are implying that the deal has better expected returns than what people are buying on margin in public markets, so why doesn't the person on the other side of the deal take a little more for themselves by selling there instead (at a slightly more favorable interest rate)? Is it because the rich investors are needed to bring some level of expertise or connections to the investment to make it work? If that's the case, and it seems likely, I would not say they are getting "access to better deals" per se. More like they are getting a normal rate of return and they have a valuable asset that they are renting out as well (their expertise or connections), and it all gets rolled into one number. But complaining about the rich having valuable assets is different from complaining about them having access to better investment opportunities.

whatok 8y ago
The sole reason that the path to public markets is a long and compliance-ridden one is enough to seek private investment. It's much harder to raise money in public markets than private ones.
- Scoundreller 8y ago
  But far cheaper to raise money in public markets than private. Once you’re big enough, IPOing makes sense, unless you just want to maintain control or those pesky compliance requirements will reveal some harsh secrets.
toast0 8y ago
Deals outside the wider market likely carry more risk, but when they work out, more reward. The other side of the deal may have time pressure and also doesn't have so many investors to shop their deal to, so they may not be able to be that agressive either.
cascom 8y ago
you're missing a couple of other factors, one is timing and being bale to move quickly, a perfect example is the warren buffet's investment in GS during the financial crisis [1]. GS didn't show that deal to the world - it went to someone that they knew could act quickly (one decision maker) and stroke a big check.... [1] https://qz.com/67052/heres-how-warren-buffett-made-3-1-billion-on-his-crisis-era-bet-on-goldman-sachs/ https://qz.com/67052/heres-how-warren-buffett-made-3-1-billi...
- jjeaff 8y ago
  As the articles alluded to, buffets investments during the crisis (I think he also took a big bet on BoA), were not a result of him being able to move quickly. They didn't need the money as badly as they needed the good PR. If the headlines read that GS had raised some capital from a bunch of "no name" investors, that wouldn't have had nearly the impact of their press release that THE Warren Buffet just invested billions in GS - so obviously he thinks we are a good bet. Now of course, buffet also needed timing and the ability to act fast, but lots of people had money to invest then.
jartelt 8y ago
Think of it like a venture capital deal. If you wanted to invest in Uber in their seed round, you couldn't get in the deal unless you had a fund set up or you were an accredited investor and had a connection to the founders. This type of deal can get you huge returns but is also very risky.
mikestew 8y ago
Is it because the rich investors are needed to bring some level of expertise or connections to the investment to make it work? My first thought was regulation. See: accredited investor. One can sell to accredited investors, and caveat emptor, or get buried in a whole new ass-load of paperwork and butt-microscopes selling to retail. My second thought was scaling, or selling in volume. Why do companies sell wholesale? Because they don't want to deal with nickel-and-dime buyers, there's a whole new set of infrastructure and process needed for that. Take a little less profit to sell one big block rather than doling it out to retail investors.
- Scoundreller 8y ago
  The last bit is a solved problem. They’re called “bought deals”. An investment bank has a public-traded equity desk that will buy, up-front, $x billion of your stock at $Y. Then they’ll email blast/call their retail investors to buy it up over the next few weeks. The banks take the risk of not filling the order with retail buyers, which happens occasionally.
charlesdm 8y ago
Example: if I'm an entrepreneur and I see an opportunity, and I have a friend with the resources to support me and who also thinks this is a good idea, then I'm not going to go out and raise funding from random strangers. You'd be surprised how many deals like that are out there. Many entrepreneurs do business with a few solid partners during their lifetime. Aside from that, there are other reasons: 1. You don't want to invest everything in the public markets, i.e. acquiring an interesting existing business and growing from there could be a good idea. 2. Some of these businesses might be less prone to losses during a recession or stock market correction, so they might serve as a buffer for cashflow and income. 3. These deals might have higher upside, because of information asymmetry or something that isn't blatantly obvious to other people. Alternatively, you might have access to different channels that could easily grow the business.
buzer 8y ago
I imagine there can be some deals that people don't really want to make public even if they aren't strictly speaking illegal. One such a deal that surfaced somewhat recently was that cum-ex trading. If you put that in the public market, you would essentially be killing the goose that's laying golden eggs since there would be outcry to make it illegal. If instead you just offered it to select few (people with enough capital & no moral qualms about using it), you could keep it under the wraps for longer time and get better long term return.

whatok 8y ago

The sole reason that the path to public markets is a long and compliance-ridden one is enough to seek private investment. It's much harder to raise money in public markets than private ones.

Scoundreller 8y ago
But far cheaper to raise money in public markets than private. Once you’re big enough, IPOing makes sense, unless you just want to maintain control or those pesky compliance requirements will reveal some harsh secrets.

toast0 8y ago

Deals outside the wider market likely carry more risk, but when they work out, more reward. The other side of the deal may have time pressure and also doesn't have so many investors to shop their deal to, so they may not be able to be that agressive either.

cascom 8y ago

you're missing a couple of other factors, one is timing and being bale to move quickly, a perfect example is the warren buffet's investment in GS during the financial crisis [1]. GS didn't show that deal to the world - it went to someone that they knew could act quickly (one decision maker) and stroke a big check.... [1] https://qz.com/67052/heres-how-warren-buffett-made-3-1-billion-on-his-crisis-era-bet-on-goldman-sachs/ https://qz.com/67052/heres-how-warren-buffett-made-3-1-billi...

jjeaff 8y ago
As the articles alluded to, buffets investments during the crisis (I think he also took a big bet on BoA), were not a result of him being able to move quickly. They didn't need the money as badly as they needed the good PR. If the headlines read that GS had raised some capital from a bunch of "no name" investors, that wouldn't have had nearly the impact of their press release that THE Warren Buffet just invested billions in GS - so obviously he thinks we are a good bet. Now of course, buffet also needed timing and the ability to act fast, but lots of people had money to invest then.

jartelt 8y ago

Think of it like a venture capital deal. If you wanted to invest in Uber in their seed round, you couldn't get in the deal unless you had a fund set up or you were an accredited investor and had a connection to the founders. This type of deal can get you huge returns but is also very risky.

mikestew 8y ago

Is it because the rich investors are needed to bring some level of expertise or connections to the investment to make it work? My first thought was regulation. See: accredited investor. One can sell to accredited investors, and caveat emptor, or get buried in a whole new ass-load of paperwork and butt-microscopes selling to retail. My second thought was scaling, or selling in volume. Why do companies sell wholesale? Because they don't want to deal with nickel-and-dime buyers, there's a whole new set of infrastructure and process needed for that. Take a little less profit to sell one big block rather than doling it out to retail investors.

Scoundreller 8y ago
The last bit is a solved problem. They’re called “bought deals”. An investment bank has a public-traded equity desk that will buy, up-front, $x billion of your stock at $Y. Then they’ll email blast/call their retail investors to buy it up over the next few weeks. The banks take the risk of not filling the order with retail buyers, which happens occasionally.

charlesdm 8y ago

Example: if I'm an entrepreneur and I see an opportunity, and I have a friend with the resources to support me and who also thinks this is a good idea, then I'm not going to go out and raise funding from random strangers. You'd be surprised how many deals like that are out there. Many entrepreneurs do business with a few solid partners during their lifetime. Aside from that, there are other reasons: 1. You don't want to invest everything in the public markets, i.e. acquiring an interesting existing business and growing from there could be a good idea. 2. Some of these businesses might be less prone to losses during a recession or stock market correction, so they might serve as a buffer for cashflow and income. 3. These deals might have higher upside, because of information asymmetry or something that isn't blatantly obvious to other people. Alternatively, you might have access to different channels that could easily grow the business.

buzer 8y ago

I imagine there can be some deals that people don't really want to make public even if they aren't strictly speaking illegal. One such a deal that surfaced somewhat recently was that cum-ex trading. If you put that in the public market, you would essentially be killing the goose that's laying golden eggs since there would be outcry to make it illegal. If instead you just offered it to select few (people with enough capital & no moral qualms about using it), you could keep it under the wraps for longer time and get better long term return.