RBCT Chapter 160 Business Development
Chapter 160 Business Development
Chapter 160 Business Development
The wealthy and the financial industry are the same all over the world; they won't move forward if you lead them, and they'll go backward if you push them.
The more you try to be friendly and win them over, the more they will act superior and disdainful.
So what they're really after isn't business; their true nature is cheapness.
When you're broke, short of cash, and desperately need funds, even if you plead your case and mortgage everything, banks will use all sorts of strict terms to shut you out, fearing you won't be able to repay.
But when you have plenty of funds and don't need to borrow at all, the bank's account manager will be like a fly that smells shit, constantly hovering around you, practically begging to kneel down and lick your toes.
This is also why financial lending departments have potential appearance requirements; even licking someone's toes has its own threshold.
The investment logic of wealthy people is the same. When you open the door, they mostly stand by and watch, feeling that opportunities are everywhere and there is no need to rush.
But once the market experiences a supply shortage, those wealthy people who once looked down on you will change their indifference and will be willing to pay several times more than before to squeeze in, as if being a step late would mean missing the opportunity to change their fate.
"What are the fees for our first private placement?" Ernst asked Jane Fraser across the room, sitting in his chair with his elbows resting on the armrests.
"The subscription fee is 1%, the redemption fee is 3%, the management fee is 1% plus a 15% performance bonus, and the lock-up period is five years."
Ernst nodded slightly, having formed a general understanding of these rates.
A 1% subscription fee is standard in the industry; almost all institutions in the US private equity market charge this percentage.
That is, if an investor invests $1 million, they need to transfer $101 million in one lump sum, of which $100 is the subscription fee.
A 3% redemption fee is only considered average.
In countries with highly developed financial markets like Europe and the United States, the redemption fees for private equity funds generally fluctuate between 2% and 5%. For a medium-sized private equity fund, the redemption fee usually exceeds 3%.
The redemption fees of well-known private equity firms are all between 4% and 5%, and none of them are lower than 4%. The redemption fee of this private equity firm called Wealth No. 1 issued by Ernst Asset Management is already considered to be in the lower-middle range.
The 1% fixed management fee and 15% performance-based commission are both far below the industry average.
The core reason why private equity funds have become a target for public funds is that they are profitable enough.
Public funds are aimed at the general public, with almost no investment threshold. Some can even start with just one yuan. Their returns are relatively stable but also limited. They mainly pursue relative returns, that is, excess returns compared to the market benchmark.
Private equity funds are completely different. They are aimed at high-net-worth individual and institutional investors. Not only do they have investment thresholds of millions or even tens of millions of US dollars, but the number of investors is also strictly limited.
In terms of returns, private equity funds have a variety of fees. In addition to fixed management fees, performance-based compensation is also a significant source of income.
Even so, it still couldn't dampen the investment enthusiasm of the wealthy, because compared with public funds, private funds, which pursue absolute returns, often bring higher returns.
Some people have vividly compared mutual funds to bank savings products: low risk, but pitifully low returns.
Private equity funds are more like the volatile futures market, where high returns come with high risks.
But the rich are all greedy, especially the richer they are.
The management fee for most private equity funds in the market is around 1.5%, while the performance fee is around 20%.
Therefore, it seems that Ernst Asset Management's Fortune No. 1 private equity fund has indeed set its fees very low.
Ernst knew very well why Jane Fraser had set the price that way, after all, Ernst Asset Management was a brand new company with no track record or reputation in the financial industry.
The initial strategy of adopting a low-profit, high-volume approach was also aimed at accumulating capital and finding ways to make a name for themselves in the fierce market competition.
However, she misjudged one thing, which was the mindset of the rich.
They don't care if you're a new financial company or how high your fees are; what they care about is how much return you can bring them and how much trust you can place in them.
Ernst wanted to take advantage of this to make a small profit off the wealthy and banks.
"I plan to launch another private equity fund with a size of $2 billion, a subscription fee of 1%, a redemption fee of 5%, a management fee of 20% plus a performance fee of 25%."
As soon as Ernst finished speaking, he noticed a look of surprise on the other person's face.
Jane Fraser paused, almost doubting whether she had misheard. She stared at Ernst, her eyes filled with confusion, even wondering if Ernst was joking.
"Are you sure? You need to know that Ernst Asset Management is a completely new company with no track record whatsoever. The previous private equity fund was able to be launched successfully largely because of your past brilliant achievements in the business world."
"But now," Jane Fraser glanced cautiously at Ernst, and still voiced her thoughts, "because of the lower-than-expected box office performance of 'Titanic,' many investors have become hesitant about you. It was already quite good that the previous Fortune One private equity fund did not experience any redemptions, and yet you still want to launch a private equity fund with a scale of up to 20 billion US dollars, and all the fees have been increased significantly."
Don't worry, Ernst's face showed no abnormality. Jane Fraser seemed to have suddenly let go, "Let alone the conditions of a private equity fund that meet the maximum fee rate on Wall Street, even if it were issued according to the previous low fee rate, it would be hard to say whether it could raise enough funds."
Ernst didn't care that Jane Fraser was reopening old wounds; a slight smile played on his lips. "Don't forget, we're on that list."
"After Soros stirred up the Asian financial markets, cheap assets are everywhere, which is a fatal attraction for ordinary rich people."
Jane Fraser couldn't help but roll her eyes inwardly. Of course she knew the importance of that list; otherwise, the first private equity fund wouldn't have been able to close so quickly.
Even if cheap assets are everywhere, no one can guarantee that the projects acquired by Ernst Asset Management will develop well and will not face the risk of bankruptcy.
Ernst had never failed in the investment field before, and everyone was willing to trust his judgment and take a gamble.
But things are different now. With the failure of Titanic, everyone will be on the sidelines and won't act rashly anymore.
According to Jane Fraser, before the first private equity fund has achieved any remarkable results, it would be extremely difficult, almost an impossible task, for Ernst Asset Management to launch a second private equity fund.
Ernst seemed to see through her worries, and a confident smile appeared on his face as he said, "Don't worry, I have my plans. This private equity fund will definitely be able to raise the funds, and there may even be a situation where demand exceeds supply."
Jane Fraser was at a loss for words when faced with Ernst's confidence; she felt that the young boss's ideas were far too optimistic.
But since the other party insisted on doing so, as a subordinate, she could only obey orders and do her best to carry them out.
"I will discuss this with the private equity department and get it done as soon as possible."
After the conversation ended, Jane Fraser noticed that O'Shea Ricardo was still there. She told him to go about his business and then got up and took Ernst back to her office.
The office is decorated in a simple yet sophisticated style, reflecting the owner's capable and efficient personality.
The first secretary walked in carrying two cups of coffee. It was her first time meeting this legendary chairman, this famous American tycoon. Filled with curiosity, she couldn't help but secretly peek at Ernst.
Ernst caught the secretary's gaze, deliberately raised an eyebrow at her, and gave her a slightly flirtatious look.
This caused the young secretary's cheeks to flush slightly, and she quickly lowered her head and retreated.
"If you have other needs, I hope you won't disturb my work," Jane Fraser said calmly, having observed everything.
The implication was clear: Ernst was being told that if he wanted to find a woman, he shouldn't try to seduce his subordinates in his own office.
"Don't worry, she's not to my taste," Ernst replied casually.
Jane Fraser couldn't help but picture Ernst's secretary with her wasp waist and plump hips.
She quickly cleared her mind of these chaotic thoughts and began to report to Ernst on the company's progress.
"For hedge funds, the main focus going forward will be the Asian market. We will only consider other directions once the situation in Asia has stabilized and everything has settled down."
Ernst nodded, indicating that he understood.
Asia's financial markets are vast and offer tremendous opportunities. Ernst Asset Management's team is newly formed, and they can leverage their operations in the Asian market to both generate profits and hone their teamwork, thereby enhancing their overall operational capabilities.
"We haven't made much progress in asset management yet. I've already spoken with Pervin Houston, who's in charge of that department. We're not in a rush to expand the business; let's focus on building our own big model system first."
This was also an idea proposed by Ernst. With the continuous development of global trade, capital is also accelerating its globalization along with trade. Relying solely on traditional human analysis and experience-based judgment is simply not enough to capture all the rapidly changing information in the financial market.
The future financial market will inevitably be a data-driven world. Only through powerful computing models can we monitor global market risks in real time and more accurately capture volatility, credit risk, and liquidity risk.
Why is BlackRock so powerful? Its Aladdin system, a comprehensive regulatory model, plays a crucial role, putting the entire financial market under its surveillance.
This system is like an invisible pair of eyes, monitoring every move in the entire financial market and capturing any slight movement in the market in a timely manner.
Moreover, once this system is developed and matured, it can be exported to provide services to other financial institutions.
Think about it: when major banking institutions around the world use Ernst Asset Management's large-scale model system, it's as if their capital flows have opened a window for Ernst Asset Management.
By analyzing the flow of these funds, Ernst Management can accurately determine the industry direction in which most of the world's capital flows, thereby making advance arrangements and seizing market opportunities.
Developing this large-scale model would make him happier than earning a billion dollars.
"As for the private equity business, Ralph Payton told me that he is optimistic about the HVAC sector," Jane Fraser said, referring to the investment direction of the private equity business.
Private equity firms' primary target is definitely Asia. After hedge funds have reaped their rewards and withdrawn, it's time for private equity firms to enter the market and start panning for gold.
However, private equity funds are substantial, and it's impossible to spend all of them or pour them all into the Asian market due to the high risk. Therefore, new projects are needed in the United States.
"HVAC?" Ernst frowned slightly. He wasn't very familiar with this field, or rather, he was completely unfamiliar with it.
What is HVAC? Simply put, it's the industry that provides installation, repair, and maintenance services for air conditioning, heating, ventilation, and related systems. Companies that operate in this industry are simply called HVAC companies.
"That's right." Jane Fraser stood up, walked to her desk, took a thick document from the drawer, and handed it to Ernst.
"After in-depth research, Ralph Peyton found that most of these companies were family workshops, typically with only a few people. Even the larger ones had only twenty or thirty employees. There were no large-scale enterprises in this field in North America."
Seeing Ernst open the document, she paused, then continued, "According to our investigation over this period, this business, though seemingly insignificant, is actually a highly in-demand industry."
"Moreover, each company can form a monopoly in a certain area, making it an absolutely low-risk industry with stable cash flow returns."
"Our plan is to integrate these family workshops into a unified brand through acquisitions and equity investments. This will not only improve management efficiency but also enhance the overall business level and give us control over unified pricing."
"Once economies of scale are achieved, the company can go public and ultimately cash out and exit."
Ernst listened to Jane Fraser's introduction while carefully reviewing the investigation report in his hand.
The more he looked, the more he felt that this industry indeed had great potential.
What's the most expensive thing in developed countries? Labor costs.
The survey report in my hand shows that the demand for HVAC services in the United States has been rising every year, which is inseparable from the favorable economic situation.
In some small towns, where there are no local HVAC service companies, residents have to pay high prices to hire companies from neighboring cities to provide services.
Many families have this need, but have to give up because the cost is too high.
If these scattered HVAC companies can be integrated, upstream cooperation can be established with air conditioning manufacturers, pipe manufacturers, and underfloor heating accessory companies to obtain goods at more favorable prices and reduce costs.
Downstream, personnel can be rationally allocated and dispersed to cover a wider area, while service prices can be appropriately reduced to expand into a larger market.
Once the market reaches a certain size and the business volume grows significantly, it will fully meet the requirements for going public. At that time, cashing out and exiting will undoubtedly yield substantial returns.
Ernst closed the investigation report, a glint of light flashing in his eyes. He had developed a strong interest in this investment plan in the HVAC field.
Jane Fraser observed Ernst's changing expression and knew that he was also interested in the project. She secretly breathed a sigh of relief, as this investment direction was the first project that the private equity department was pushing hard for. If they failed to gain Ernst's approval, it would damage the confidence of the private equity department.
A brief silence fell over the office, broken only by the ticking of the wall clock. Ernst quickly calculated the project's feasibility and potential risks, while Jane Fraser waited quietly for his final statement.
After a while, Ernst looked up at Jane Fraser and said, "This investment plan in the HVAC field is very promising, and we can proceed along this line of thinking."
Jane Fraser smiled with relief and quickly said, "Okay, I'll inform Ralph Payton immediately and have him develop a detailed implementation plan as soon as possible."
Ernst nodded and continued, "However, while advancing this project, we cannot ignore the opportunities in the Asian market. The cheap assets left behind after Soros stirred up the Asian financial markets are a tempting prize we absolutely cannot miss."
"The issuance of the second private equity fund must be finalized as soon as possible to ensure that the funds are in place in a timely manner."
"I see."
When Ernst brought up the private equity fund again, Jane Fraser's reply was somewhat perfunctory; she simply didn't believe the fund could be raised.
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