The Residential Real Estate Crash Index Message Board

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Strategies & Market Trends : The Residential Real Estate Crash Index

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To: redfish who wrote (37886)	8/14/2005 12:55:32 PM
From: Moominoid	Read Replies (1) of 306849

The "hedge fund" is the pool of private equity accumulated. You have the idea for the firms particpating right. And yes I can't see the market is as big as they would project especially as they claim this hasn't been tried before and the principals have almost no track record in the finance industry! The returns to investors in this 504 scheme are that companies who participate receive back stock worth nominally 80% of what they contribute. They say they assume that 90% of these firms will go bust as they expect a worse track record than experienced VCs. Therefore, the ones that succeed must reach a 900% return before exiting in an IPO or whatever for all those premia to be retained. The claim is that if you pay for a couple of years expenses for this fund with your shares you will then leverage millions and millions in contributed premia so that the value of your stake will increase one hundred fold in 5-7 years. Obviously there is something really wrong there! If all these guys need is $600k and this is as lucrative as this why would they give all those profits to the investors?

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