Saturday, August 10, 2013

PEU's Looking to Moms and Pops

Barron's gave Carlyle Group co-founder David Rubenstein a stage to sell PEU investments to the little people.  Rubenstein is likely grateful to Barron's Chad Dowling for the free ad.  :

What's the logic behind widening the investor base to nonaccredited investors?

Today, if you are to be an accredited investor, you need to have roughly $1 million of net worth or about $250,000 of annual income. The theory is if you have that much money, you are reasonably sophisticated. But that is a little unfair. Let's suppose you inherited $10 million, but that you aren't attuned to financial markets. You can put your money into a private-equity fund because you are an accredited investor. Now let's say you are a public-school teacher, you don't earn much, and you are not an accredited investor. But you know markets, which you studied in college. It is unfair that this person, who is very smart and sophisticated but doesn't have a high net worth, can't get the benefit of a higher rate of return. And that person probably needs the higher rate of return more than the wealthier person does. There is going to be political pressure on the government, including the Securities and Exchange Commission, to modify the types of people who can go into these products. 
The political pressure will come from the PEUniverse, not the small investor.  The Rubenstein's of the world want to cash in their PEU stakes and may need little people to again enrich them handsomely (BankUnited, Boston Private, Booz Allen Hamilton are but a few Carlyle affiliates benefiting from Uncle Sam's largess).