Chapter 1219 The Power of Rules

Zhou Buqi asked, "What about the share? What's the standard?"

Rick Efron glanced at him and said with a smile, "The terms of your fund are so good, the share must be the highest standard. 25% or 30%, it's fine."

According to the practice in the industry, usually 25% of the profit share is the highest. For very few private placements with particularly good performance, the commission may be as high as 30%.

However, Rick Efron also talked about the new industry status, "This year's impact on the Wall Street market is too great. The greater the change, the greater the change. Recently, I have handled several projects, and I have begun to seek details of commission methods. Divided."

Zhou Buqi didn't understand, so he asked, "So?"

Rick Efron said with a smile: "In general private equity, the annualized commitment is 8%, and the excess profit sharing is adopted. That is, the part of the income that exceeds 8% begins to be shared. Generally speaking, the annualized commitment exceeds 10%. It is not an excess share, but a full profit share. For example, if you earn $100, the excess profit share model is to deduct 8%, and share the remaining $92, such as 20% share, you can Earn $18.4. If it is a full profit sharing model, you don’t need to deduct 10% or 20% of the annualized income, and you can earn $20 with a full share of $100. That is to say, it’s not that the promised bottom-line guaranteed annualized income is higher , the less the fund managers earn, they can have different rule designs. Now there is a new model, the progressive model.”

"Progressive?" Zhou Buqi raised his eyebrows, "Progressively?"

Rick Efron said: "Private equity is played in a variety of ways, and the latest trend is to progress layer by layer. Just like a case I handled before, the distribution of product benefits is less than 8% of the income, and the fund does not participate in the share; 8%-15% The income part is divided into 20%; the income part of 15%-30% is divided into 40%; the income part of 30%-50% is divided into 50%; the income part of more than 50% is divided into 75%.”

"75% share..."

Zhou Buqi took a deep breath.

Depend on!

He felt that his thinking was wild enough, but the Wall Street boss didn't take it seriously at all. The last thing Wall Street needs are lunatics, which is absurd.

Take the investor's money to invest, and after earning money, 25% will go to the investor, and 75% will fall into your own pocket? Rao Zhou is not bold enough to act recklessly, nor does he dare to do so.

Rick Efron explained: "Wall Street has encountered a lot of difficulties this year and needs to change and innovate. I think this progressive commission model will become the mainstream of private equity in the future. The three red lines you have done are very good. Radical, might as well try this new model.”

Zhou Buqi immediately refused, "No need, let's use the traditional model. Cognition is more important than facts, and investors' ideas are the most important. My fund takes 30% of the total profit, isn't it too much?"

Rick Efron smiled and said: "Of course not too much, the guarantee conditions you offered are so good, 20% annualized commitment, refund of management fees, compensation for losses, these three rules are enough to qualify for a 30% fixed into."

Zhou Buqi knew it well, "What about the third point? How about the loss compensation mechanism?"

The market and common sense often run counter to each other, so leeks are everywhere.

The higher the yield, the smaller the fund size; the lower the yield, the larger the fund size. In other words, the more profitable the business, the less people do it; the less profitable the business, the more the threshold is squeezed by everyone.

Benefits and risks are equal.

The world's largest single financial asset is U.S. debt, with a total size of up to ten trillion U.S. dollars, because of low returns and low risks.

75% of the income that exceeds 50% can be commissioned... Such a rule is too crazy. It is conceivable that in order to obtain 75% of the return, the fund manager will increase leverage crazily and keep playing high-risk operations. Most investors don't like this.

The scale of private equity is far smaller than that of public equity. The most famous private equity giants in the industry, such as KKR and Black Rock, only manage a capital scale of US$30 billion.

One of the very important reasons is that private equity is too risky.

Zhou Buqi is a newcomer in the private equity market.

If you want to be recognized by the market and investors in the early stage, and get large-scale investment, the most important point is to operate within the scope of common sense and low risk, and absolutely guarantee the interests of investors.

The guaranteed annualized return of 20% is a bit high, which means that no investors are willing to participate. In order to make up for the shortcomings of this rule, a capital preservation policy is introduced. Once the fund loses money, the fund will make up for the loss to ensure that the investor's principal will not be damaged.

Of course, the financial elites on Wall Street have already applied the model that even Zhou Buqi can think of.

"Okay, it's good." Rick Efron recognized this clause very much, anyway, he didn't pay for the loss, "Of these three clauses, this one is the most important, and it is also the most important for your fund. Attractive place. The more responsible the fund manager is, the more sought after by investors. Well, you are an entrepreneur, you should understand.”

Zhou Buqi is not humble at all. This is an American. Modesty can be mistaken for inferiority complex, so he said very confidently: "Of course, both the market and the society like responsible and responsible entrepreneurs. I am That kind of people."

Rick Efron nodded, "However, your loss compensation will not set a stop loss limit?"

"What's the meaning?"

"I recently worked on a project of TPG, a fund that wanted to raise US$5 billion. As you know, the market is very risky now, and many idle funds are unwilling to enter the market, and they are all on the sidelines. In order to attract investors, the fund The manager made a similar commitment, and he put $50 million out of his own pocket. If the project loses money, he loses first.”

"ah?"

Zhou Buqi wanted to scold the street, when did the capitalists on Wall Street talk about their conscience like this? If the fund loses money, the fund manager's personal investment will be followed first. After the loss of the 50 million US dollars, the investor's principal will be lost.

In order to raise funds, this is reluctant to let the child lose the wolf.

Rick Efron said: "$50 million, that's just 1%. It's equivalent to the fund's promise to compensate up to 1% of the loss. What about your side? No upper limit?"

"No need!" Zhou Buqi waved his hand, righteous, "A 20% loss on a $5 billion market is only $1 billion. I can afford it. What I hate the most in business is making investors lose money. I'm uneasy."

"Well, it's admirable."

Rick Efron gave a thumbs up.

I was very suspicious in my heart.

He didn't have much contact with this local tyrant of Zhou, so he didn't quite understand the boy's way of speaking. He was so righteous... Was he fooling himself like a layman? Or did he really mean it?

But one thing he was sure of was that this must be nonsense.

Can people who follow the rules outplay those who make the rules?

Just like the new project of TPG Capital, which raised 5 billion U.S. dollars, and the fund manager contributed 50 million U.S. dollars out of his own pocket. If he loses money, he will lose his own first... At first glance, I feel a sense of justice, so tall, and I have an opportunity Go cut the leeks of the capitalists.

However, the fund is operated by the fund manager, how could he allow himself to lose money? In terms of investment strategy, you must be conservative and choose some low-risk investments.

This kind of dignified clause is actually just a decoration, it is to use the power of the rules to fool investors into paying, and it is estimated that it will not be used in ten or twenty years.

Now is the financial crisis, and the whole world will definitely release water. Before the next economic crisis comes, all kinds of important high-quality assets will definitely store water and appreciate in value.

Zhou Tuhao's terms are probably similar.

He must have seen the big picture clearly.

Quantitative easing around the world requires a lot of water. Hot money flows into the market, as long as you don't increase leverage to kill yourself, it is difficult to lose money.

Zhou Buqi laughed and said, "So, these three clauses are all right?"

Rick Efron said: "It's okay to look at it one by one, and there are precedents. However, it's the first time I've seen the integration of these three. Those with high risks will not be compensated for losses, and those who will be compensated will not promise High yield. It’s two contradictory things, and you combine those two things, and that’s the most... well, the most innovative.”

Zhou Buqi said meaningfully: "Only by combining high returns and compensation for losses can we attract the best investors."

Rick Efron laughed loudly, "Mr. Zhou is indeed a big business man. In my heart, you are like Bill Gates and Buffett, much better than these idiots on Wall Street."

Zhou Buqi ignored the other party's compliment, "What do you think the capital scale should be?"

Rick Efron said: "It should not be too much, 10 billion US dollars is enough. You have just started this business, and it is not easy to deploy such a large amount of funds for asset allocation. Take your time first."

This idea coincided with Zhou Buqi's, "Well, that's what I thought too."

Rick Efron said: "In the past few months, due to market panic, many investors have withdrawn their funds from private equity. For the middle and lower class, they have a difficult life. But for a small number of people, What they worry about is that they can’t find good investment targets, and they have a lot of idle funds in their hands. We have internally estimated that there are at least 1.3 trillion US dollars idle in the global market.”

"Well, choose the best."

"Yeah, as long as the conditions you offer are good enough and the scale of the capital is small enough, many dignitaries and celebrities, including European royal families and Middle Eastern princes, will find connections to get close to you, make connections and make friends, hoping to win investment shares .”

Rick Efron had a half smile on his face.

He had already seen it.

This is the main purpose of this kid.

Zhou Buqi openly admitted that Wall Street is different from Silicon Valley and Hollywood. It is closer to politics here, and all contacts are congressmen and dignitaries. He asked, "I do have such an idea. Do you have any good suggestions?"

Rick Efron laughed: "You can learn the Madoff model."

These three red line rules were all introduced after the Wall Street financial reform in 2008. The protagonist uses it earlier. Many people may not understand that this kind of rules is brainless, idiot, and nonsense, which just reflects the power of rules, which can easily make ordinary people hallucinate, thinking that capitalists have become leeks, and have the opportunity to harvest capitalists up. Private equity is too far away from ordinary people, and many people don't understand it. For example, there is a private placement in China, and the promised annualized return is 25%, is it very high? In the past few years, it was indeed tepid and never met the standard. The epidemic has increased by 4.5 times in recent years, and the profit in the previous year has reached 270%. If you don’t open for three years, you will have to wait for three years after opening. This is the logic of ultra-high guaranteed annualized income. All the premise is to use the rules to put the money from your pocket into my pocket first.