Page 300 - James Caan - The Real Deal

The Real Deal

When I returned from Harvard, I started looking around at
ways I could invest the money I had from the sale of Alexander
Mann. At the time I thought I might actually get a job, perhaps as
the CEO of a major charity working for a symbolic salary rather
than something I could live off, so making sure my cash provided
me with an income was important.
Having been hamstrung by the sheer number of possibilities, I
made the decision that I would get someone else to invest it for
me. At the time, private equity firms were producing the best
returns, so I set up meetings with several of London’s private
equity operators to see what they could do for me. My only
experience of private equity had been dealing with Advent when
they’d bought into Alexander Mann: I knew how it worked from
the target business’s point of view, so I was interested to know
how they viewed deals from the other side of the fence.
Private equity firms make their money by buying into companies
and recommending operational changes that boost profits. They
are a lot like venture capital firms except that they invest
development capital rather than start-up capital. By investing in
existing companies they reduce some of the risks that are inherent
in investing in start-ups, but whereas venture capital firms typically
invest from £250k to £1 million, private equity deals usually start
at the £1 million mark and can involve hundreds of millions of
pounds (like the takeover of EMI that created such a fuss in the
music industry in 2007, or the billion-pound-plus deal for Sains-
bury’s). When the figures of the company they’re turning around
have increased sufficiently, they generally sell up and take their
profits.
The money they invest in the first place comes from a mix of
institutions and ‘high net worth individuals’, of which I was one.
Typically they charge a management fee of 2 or 3 per cent to cover
their overheads – so if they had a fund of £200 million and charged
2 per cent, they’d have an income of £4 million a year – and then

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