Revealed: The Secret Wealth Investment That Yields Up To 17.3%


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It's an idea that the richest and most powerful people in the business world almost never say out loud.

Buttakeover king Wilbur Ross knows it. So does Herb Allen, the most exclusive banker in the world. And you can bet your boots that billionaireWarren Buffett knows what I'm about to tell you. In fact, he's often said these are the types of deals he wants to pursue.

Here'sWall Street 's dirty little secret: The bestinvestments in the world -- those with the biggest returns and some of the highest yields -- are not listed on anystock market .

They'reprivately held .

According to aninvesting trade group, as of September 2012, the private market outperformed the S&P 500 by 2.5 percentage points, 5.5 percentage points and 5.7 percentage points for three-, five- and 10-year periods.

And it's not limited to just recent performance. A study by professors at Duke and Ohio State covering a period from 1984 through 2010 found that private market investors earned 18% more than the S&P 500.

It's proof that when it comes to investing, the rich really are different -- they invest in better companies.

But exactly how do they do this?

Well, rather than buyingshares on the stock exchange, savvy big hitters write a very large check to a very special kind of firm. To be eligible to invest like this, federal law stipulates that an investor needs to have at least $200,000 ayear in annual income ($300,000 for a couple) and more than $1 million innet worth , excluding a primary residence.

That is a very high bar. Those rules block 94% of investors.

The official name for these highly exclusive firms is "privateequity ."

A private equity firm has more than a pile of investorcash tooffer . It also provides executive mentoring and business advice -- often from some of the biggest names in corporate America. 

I like private equity because alot of private-equity firms do the exact same thing I try to do with my newsletter, Game-ChangingStocks .

They try to find the Next Big Thing, and they seek to invest in it before anyone else realizes that they've found the golden ticket. (For example, Amazon founder Jeff Bezos invested $250,000 in Google in 1998 -- years before it even thought aboutgoing public .)

Here's the good news: Private equity doesn't have to be our competitor. It can be our partner. In fact, you and I canput private equity and its consultants to work for us the same way the billionaires do.

That's because there is a way around the rules that bar ordinary investors like you and me from investing in private-equity deals.

And as these businesses grow, their private equity backers can get phenomenally rich.

For example, between 1973 and 2011, Yale University'sendowment fund generated average annual returns of 30.3% in private equity. That includes a monster return of 168.5% in the year 2000, when Yale made $2.1 billion on its private-equity investments.

Compare that 30.3% figure with the averagegain of just 10.2% per year for the S&P over the same time period, and you start to see the type of impact that private equity could have on your portfolio.

Given the returns they've generated, it should come as no surprise that private equity now ranks as Yale's single largest holding. In fact, Yale invests twice as muchmoney in private equity as it does in regularcommon stocks .

And Yale's performance isn't unique -- as you'll see in a moment. 

Thebottom line is that private equity firms have made countless fortunes over the years. 

But until 2007, you couldn't invest directly in private equity unless you were either an elite institution like Yale, or you ranked among the richest 6% of all Americans. 

Fortunately for us, all of that changed in June 2007 when one of the largest players in this notoriously secretive industry made a surprising decision. It decided to list its shares on the New York Stock Exchange.

Thanks to these recent developments, you can now invest directly in a handful of the world's biggest and most lucrative private-equity firms. And with each and every deal they make, you can reap the same rewards that the ultra-wealthy have already been enjoying for decades.

Not to mention, you could enjoy the sky-highdividend yields many of these firms pay out each year.

Just look at the returns and yields of these five private-equity firms available to buy on the public market:

Company Total Return
Dividend Yield*
Fortress Investment Group (NYSE: FIG ) 92% 4%
The Blackstone Group (NYSE: BX ) 55% 8.6%
The Carlyle Group (Nasdaq: CG ) 44% 11.3%
KKR & Co. LP (NYSE: KKR ) 62% 14.6%
Apollo Global Management (NYSE: APO ) 134% 17.3%

*Yield calculation based on company's last dividend payment

Compared with the S&P 500's total return of just 25% over the same period, private equity certainly looks tempting.

Action to Take --> You won't become a multimillionaire overnight by investing in private equity, but you'll have a chance to bank a tidyprofit from some of America's fastest-growing private companies. And most importantly, you'll tap directly into the private market -- a market that's cheaper and more lucrative than regular, ho-hum common stocks.

--Andy Obermueller

[P.S. - The private market is starting to be unlocked for public investors. But it's not just private equity. We've found another private equity-like investment that is required by law to pay 90% of profits to shareholders -- and it's not what you're thinking. Click here to learn more.] 

Andy Obermueller does not personally hold positions in any securities mentioned in this article. StreetAuthority LLC does not hold positions in any securities mentioned in this article.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

© Copyright 2001-2010 StreetAuthority, LLC. All Rights Reserved.

This article appears in: Investing , Investing Ideas
More Headlines for: APO , BX , CG , FIG , KKR

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