Benjamin Felix

And another big thing is that the fees and costs associated, and we talked about this in a lot of detail in a previous episode, the fees and costs associated with private company investments can often absorb the financial benefits of owning private assets.

As we've talked about, that has largely been true with private equity funds in general, which have delivered net of fee returns roughly in line with public markets, especially when they're properly matched to comparable public equities.

There are some really interesting stories floating around right now about the length that some people have gone to to buy what they hope are SpaceX shares.

So there are these things called special purpose vehicles that get created in order to pool investor money together and buy private company shares.

Private companies don't want hundreds of investors on their cap table.

So a special purpose vehicle can pool a bunch of money together.

So there's just one entity that's buying shares.

So there's one special purpose vehicle reported on by the Wall Street Journal.

that had a 4% upfront fee with an additional fee of 25% of future profits when the shares are sold.

You can get exposure to the shares through this SPV, but how much of the benefits are you actually going to keep?

One of the other things that comes up is that there are questions about who actually owns what, because the special purpose vehicle structures and layers of ownership are so complicated that it's hard to know what you actually own.

And then there are also stories of just outright fraud in some of this reporting where people were saying they could get access to some of these private company shares and they were actually just stealing the money, which hopefully is not too common.

It's out there.

Anytime there's something people really want, I think it will create a vector for fraud.

People will see something like SpaceX.

They'll imagine all the money they can make if they were able to buy some SpaceX shares or whatever company shares at a low valuation and then sell when it goes public, which is true if you can do that.

Yes.

But unless you're an employee or otherwise have direct access to the company shares, early and direct access to the company shares, financial intermediaries that do have access or able to get access are not typically going to give you, the end investor, access to an equity like that on terms that are better for you than they are for the intermediary selling them to you.

Financial intermediaries

They don't tend to be in business to give you the investor money for free.