Private Equity Woos 6,000 Retail Investors At A Beach: Red Flag?

Private Equity firms have targeted retail investors as institutional investors head for the exits.

In order to induce the “dumb money “ retail crowd, PE firms have resorted to tactics such as throwing a massive beach party to attract investors.

According to the Wall Street Journal, PE firms hosted a four day “Future Proof Festival” on Huntington Beach, California where 6,000 millennial would be customers were treated to musical performances ,meditation and workout sessions, and classes on how to make whiskey-based cocktails, artisan pizza and sea-salt scrub. 

PE giants Apollo, Blue Owl and State Street pitched their funds to beach goers seeking high returns.

Blackstone wined and dined Financial Advisers to sell billions of dollars of BDCs, non- traded business development companies, to their retail customer base.

The PE giants are also appealing to young investors by sponsoring golf and tennis tournaments and even Formula One racing events.

It’s not clear that retail customers understand the outsized risks of PE , namely,  that such investments are illiquid, the NAV ( net asset value )  may overstate the market value and PE usually require capital calls.

The PE retail push comes at a time when the SEC proposed major changes that would make private equity, private credit, venture capital and other alternative investments more accessible to retail investors. The initiative is called “Responsible Retailization of Private Markets."

Many PE funds have suffered substantial losses and many involve fraudulent practices. Much of the private credit investments being pushed on retail customers involve over $50 billion in dodgy high risk software company loans that could face defaults.

The old expression that there’s no free lunch clearly applies to a day at the PE beach.

Retail customers would be wise to consult an investment fraud lawyer before opening their wallets for risky PE funds.