Common Traits Of A Private Equity Investor

Common Traits
of a
Private Equity
Investor

© 2016 CustomPrivateEquity 558 Ambler Avenue, Abilene, Texas 79601 325.665.7818

Private Equity Investing is not for everyone. If
you spend hours thinking about the next hot
public stock you can buy or you drool over
public company stocks, beta's, relative strengths
and industry sector trading, then Private Equity
investing is probably not for you. In fact, if the
money you use for investing is your emergency
fund and must be available to move within 24
hours, then you are not ready for private equity
investing AT ALL.

In this blog, we will discuss the characteristics
of a Private Equity investor, what makes them
tick, what their needs are and how Private
Equity meets those needs.

We will talk briefly about what makes a good
Private Equity Manager (a future blog post). We
will identify and discuss their traits in detail and
why those traits are good for you as an
investor.

Some traits that successful private equity
investors have are:

1) Affinity for Cashflow. Most Private Equity
investors have a preference for tangible, hard
assets. As a portion of their portfolio, a
Private Equity investor prefers to own hard
assets that throw off cash-flow regularly. As
the tangible portion of their portfolio, they
own real estate, oil wells, precious metals,
art, collectibles and other hard assets.

2) Extraordinary Curiosity. A good Private
Equity investor is very inquisitive. They
wonder how a business ticks, how it works,
how it is designed and how it makes money.
They often study a business for weeks,
months or years before they make an
investment, frequently working in the

business to get a feel for the inner-workings.
If they have questions about the business,
they will generally not invest in the business
until they understand and get all their
questions answered.
3) Patience of an Oyster. Good Private Equity
investors become so comfortable with their
investment choices that they do not mind
investing their money in illiquid businesses,
especially if those businesses throw off
substantial returns. They know that if they
pick the right manager, business and
product, that profits will result.
4) Broad Understanding. Private Equity
investors generally have a larger
understanding of the investing universe than
just the stock or bond market. Private Equity
investors understand that their investment is
the beginning of a new idea or concept in the
marketplace or the expansion of a business
that has been successful already, it just
needs capital to grow. Private Equity
investors frequently use a public offering
(IPO) or sale to a public company as an exit
for their investments.
5) Long Range Vision. As a general rule, Private
Equity investors have a vision for what types
of assets counteract the undercurrents of the
economy that eat away at their wealth such
as inflation and government policies. They
use their Private Equity investments to
counteract these undercurrents and grow
their wealth instead of letting government
actions erode their buying power.
6) Dedicated to Research. Private Equity
investors thrive on research, market
knowledge and functionality. They want to
know what makes a business tick, is it the
owner, is it the product or the sales team.
They want to understand what talents are

possessed by the team and required for the
business to operate efficiently? What is the
real secret to the success of a business? On
the hard asset side, they want to know the
details of the asset, the market, the
neighborhood, the producer cycle, the rent
rolls and the competition’s rent rolls. They
want to know what the past 20 years has
looked like in the business, neighborhood or
marketplace and what global happenings or
statewide happenings have occurred to drive
their particular investment. This is where the
Private Equity Asset Manager comes into
play.

A good Private Equity Asset Manager brings
research, deep industry knowledge and the
ability to build and execute on an investment
plan. They understand the dynamics of the
marketplace or the investment they are making
and have a global picture of how the investment
will affect any investors portfolio. We will
discuss the traits of a quality Private Equity
Asset Manager in a future post.

In conclusion, a typical Private Equity investor
is a curious person who likes to own hard,
tangible assets that produce positive, tax
advantaged income, appreciate in value into the
future, fight inflation and make his/her portfolio
immune to government policies like interest
rates and inflation. They like to understand
their asset, inside and out. Its market, its
production costs and operating expenses, the
traits of the management team and the
weaknesses in the sales and profit process.

PAUL ANTHONY THOMAS IS THE OWNER OF CUSTOM
PRIVATE EQUITY WITH PORTFOLIO COMPANIES IN THE OIL
AND GAS PRODUCTION, TEXAS COMMERCIAL REAL ESTATE,
VENTURE CAPITAL AND M&A/GROWTH CAPITAL SECTORS.