Tuesday, February 07, 2006

let me clarify...

Just to clarify the position I took in the previous post (Rescind Tracinda).
  • I was writing the article for the individual investor. The point was that for said Joe and Jane Investorr, there are better risk adjusted returns out there today, not that Kerkorian has absolutely no chance. In fact, if (by some act of god) Jerry York and Kerkorian are able to turn the General around, they stand to make an absolute killing. And, when you're playing with as much $ as Kerkorian is, its alot harder to realize 100%+ gains.
  • Since information on Tracinda is pretty sparce I'm not exactly certain, but I'd go out on a limb that a good portion of Tracinda's capitalization comes from Kerkorian's personal wealth. In general, however, investors in private equity/VC funds have different risk profiles than most individuals. Alternatively, private equity investors have similar risk/reward profiles as individual investors, just far larger piggy banks. For example, conventional wisdom for the individual investor often suggests individuals allocate roughtly 10% or so of their portfolio to risky plays, e.g. small tech companies, similar (although not exactly) to those in which VC funds typcally invest. CalPERS (the largest pension fund in the Country) similarly might have only 10% of its $200 billion portfolio allocated to VC funds. It would not be prudent though for CalPERS to throw $2 billion into small-cap stocks with capitalizations of only 50 million dollars now would it? From this perspective, its more a matter of asset class than of risk/reward combination. It is worth note that another major(if not the main) reason individual investors typically are shut-out of private equity assets is the relatively lofty minimum investments most PE/VC funds require, often in the ballpark of 7 or 8 figures.

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