Rick Edelman, Edelman Financial Engines, Edelman discussed on Ric Edelman


Let's take a phone call here on the Rick Edelman show off the Geneva Illinois in Chicago land can is on the air with us How you doing Ken I'm doing just fine How are you today Terrific Thanks so much for calling How can I help you Well first of all I want to thank you for so many years on your radio program And also to wish U and gene the best of luck going forward and I was going to be more than luck in your future endeavors and look forward to seeing just how things we have progressed in this next phase of your career I appreciate that very much can We'll have some exciting announcements in a couple of weeks from now But I thank you so much I really appreciate that So stay tuned for more Meantime what can I do for you today Well I was recently contacted by my very financial where I have my investments And they're soliciting me to get involved in possibly private equity in investing I've got sufficient assets that would qualify me for being able to participate in this kind of a private equity you fund Minimum minimum requirement is an investment of $500,000 And there are a lot of questions that I have about the long-term commitment on this and the higher fees and potential calls for more equity in such So I have I don't think I've ever really heard you address that very much on your program And what if you could give us me and others a listeners your insights and whether or not Edelman financial has any advice as any of this wealthier clients to possibly get involved in private equity Sure You're right I don't talk about private equity here on the program much at all But let me give you some background on it I'm a fan of private equity That should be as no surprise since our firm Edelman financial engines is now majority owned by private equity firms We have three In fact private equity partners in our firm and we've had private equity partners since 2005 So I was very early in welcoming private equity into our lives And I'm a big fan of private equity investments So June and I personally own some private equity funds It is as you noted only for accredited investors This means people who have $200,000 or more in income 300,000 if you're married and an expectation that you're going to continue that income or a $1 million worth of investments excluding your home So it is only for wealthy affluent individuals which is why I generally don't talk about it a lot on the show because this is a broad based radio show not merely a show for the very wealthiest The advantage of private equity is that there is a problem in the overall equity markets The problem is decreasing availability You know back if we go ten 15 years ago there were about 7000 publicly traded stocks in the United States Today there's about half that number about 3500 Many companies that were publicly traded have gone private private equity firms That's why they get their name have bought these companies and take them private My company used to be publicly traded And when we did a merger with financial engines they used to be publicly traded We bought them merge the two of our companies together and took them private So whereas investors used to be able to invest in Edelman financial and in financial engines public investors ordinary mutual fund buyers and so on can't do that anymore because we're now privately held by private equity firm The reason that this trend has occurred oh there are a lot of reasons I'll give you a few One is that companies have a changing need for capital In the old days companies went public because they needed access to the capital markets They needed the money to grow their business Build factories engage in R and D sell products et cetera today you don't need to go to the public markets to get capital the way that you used to Now there's ample availability of capital in the private markets through either borrowing or from selling some of your equity in the private marketplace So you don't need to go public anymore in that regard You also have a new set of federal regulations such as sarbanes oxley which are very burdensome I remember ten years ago when we were a publicly traded company we were spending over $2 million a year in legal and accounting expenses to comply with sarbanes oxley It wasn't doing our company any good It wasn't improving the safety of our clients or our investors It was just legal regulatory obligation And by going private we saved ourselves millions of dollars a year So a lot of companies are motivated to go private simply because of the burden of being public And then there's another problem which everybody is very familiar with When you're a publicly traded company Wall Street wants you to give your financial results on a quarterly basis And they want to know what are you doing over the next three months that's going to raise the stock price Well it's hard to make a long-term financial decision That's going to take years to develop When Wall Street demands quarterly results by being private we don't have to worry about it because our private equity partners are in it for the long term They recognize they're making a multiyear investment of 5 or ten years and there being patient about it And that allows us to be more strategic long term we're willing to spend money today without an immediate ROI and immediate return of investment because we know in the long run it'll pay off for our clients and for employees And yes for our shareholders the private equity partners So those are just some of the reasons why private equity has grown up in this business And why I'm a fan of it because wouldn't it be great if we had bought Microsoft back when it went public.

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