The largest Alternative Asset or Private Equity group in the US is the Blackstone Group led by Stephen Schwarzman. You can watch some of his interviews on You Tube and given his success over the past 40 years, lessons are easily learned. His company typically invests in companies or real estate under the method: (1) buy a company with $ 3 of debt to $ 1 of equity; (2) improve the company and accelerate the growth rate of the company (3) sell some or all of the new company. Repeat. For the past number of years his company has a internal rate of return (IRR) of 20 to 30% after fees. The task is try to buy at low prices and allow the rise the normal cycle of economy to greatly help your investment.

Mr. Schwarzman credits a number of elements for success:

1. Private Equity is a risk minimization business. For all the great rewards, the deals you choose to go into, you understand as many risks as possible and they are scrutinized. Mr. Schwarzman credits his company’s second deal where they lost money, the investors were not happy, this changed his process to failure. The process was changed to every deal that comes up, before being accepted, the deal has input from everyone at the table not just the senior partners. In this fashion as many risks as possible are seen beforehand and understood. The trick is to ensure all deals are examined and the intention is not personal but to minimize the risks or ensure the devil’s advocate voice is heard.
2. Starting a business means you need to be adaptable because whatever you do you need to understand what you do before you do it. why do people need you? what strategies will you employ? but you must have a passion to do or go forward.
3. The early years, you need to be adaptable and keep going. You will need a thick skin because people will lie to you, before they start doing a business with you. The world will not see you as valuable as you see yourself and your company are. If you become overconfident or lose your will, your company will likely fail and many do.
4. Private Equity is an amazing investment; need to attract great people and essentially a manufacturing intellectual business. You will need a vision and make it happen through excellence in execution.

Linking to dividend paying stocks, the rule with private equity is to buy a company when it is slumped or down from its heights and restructure it. Part of the success will be the restructuring, success also comes from riding the economic cycle wave up to the top. An example if the company has too much debt and is in the commodity business; the finances can be restructured but the commodity price must increase as well. If both happen, capital gains are to made. The system requires patience, an understanding of risks, and it is possible. If you buy dividend paying companies, the dividend will give you patience and if there is a commodity price move, the capital gain allows you to sell and buy other dividend companies, in the meantime the risk is maintained at a low level.

There are more questions than answers, till the next time – to raising questions.