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“Zach, I’m not paying you to sit on a pile of cash!”
I had to hold the receiver away from my ear. Joe was shouting in his thick New England accent from his office in Boston.
“I pay you to INVEST my money! And if you can’t do that, I’ll find someone who CAN!”
Ouch!
I guess that’s what I get for trying to protect Joe from a market pullback.
You see, when I worked at a private hedge fund in Atlanta, it was my job to not only invest for our funds, but also to manage the personal accounts of some of our most wealthy clients. And on this day, one of our wealthiest clients was giving me an earful.
At the time, Joe’s account was halfway invested in some conservative stocks that I had researched. And half of his account was sitting in cash. The market was unstable and I was concerned that stocks might trade lower. And I didn’t want Joe to lose money if that happened.
But Joe wouldn’t have it…
Joe wanted his money working for him. So over the next week, I put Joe’s dry powder (or available cash) to work, picking out the best stocks that I could. After all, it was his money and if he wanted it in the market, then I had to follow his instructions.
Today, some of the biggest investors in the world are in a similar position.
And with nearly $1.1 trillion in cash on the sidelines… and customers who want to see it put to work… that cash could ignite a buying frenzy in a handful of key stocks!
Today, I want to show you where that cash is headed, and how you can profit when the cash goes to work.
Enough Dry Powder for an Explosive Market Jump
Private equity companies are swimming in cash.
These investment companies collect money from their clients (typically uber-affluent individuals along with pensions and endowments), and then invest that money in specific opportunities.
The companies typically have different strategies for how to invest the money. Some focus on real estate transactions, others on market opportunities in one sector or another, and some buy out entire companies.
Buyout firms are especially interesting because they typically use cash to make the acquisition, and then use their contacts and expertise to improve the company that they bought. Ultimately, these companies will be sold again and the private equity company (along with their clients) will lock in huge profits.
This week, I saw an updated chart that shows just how much cash these buyout firms have on hand.
Over the past several years, the amount of dry powder these firms hold has continued to increase. And in just the first three months of 2018, the available cash has jumped by nearly $100 billion!
Investors in these private equity funds are not going to stand for their money to be sitting idle on the sidelines. The investors are paying private equity firms to DO SOMETHING with …read more
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