My broker wants to introduce me to an outside company to look at making an investment in the following fund:

Cliffwater Private Capital Fund (CPEFX)

My aim for the funds I am considering allocating here are pure growth. I am not interested in dividends or income here. I am looking at the funds I will put in as the "last money" I intend to draw from, more likely just passed down, if all goes according to plan - likely 1-2 decades in the future. Liquidity, therefore, is also not an overriding concern. If I do not do this particular fund, I will need to find something else as a growth play with similar goals.

For those more financially savvy than I am (likely the majority in this Forum), what questions would you have prepared to ask of the outside company who would broker the investment, as well as any potential thoughts about the fund in general? Thanks in advance.

I think this is a good "starter" private equity investment.

The main thing that's attractive about this investment is it's easy to buy it. Basically trades a lot like a mutual fund. It's called an interval fund. You can get money out semi annually.

It owns a lot of secondaries which are generally speaking a less risky way to invest in private markets.

That said I think this is great for folks with a net worth
In the 1mm-2.5mm range. When you get into the qualified client or qualified purchaser level there's other investments that become available that I think I'd rather you own.

What is the minimum investment in the fund?

Pretty low. Maybe 25k or lower. Can't remember exactly. But not high.

If I was an FA I'd show you this too, the RTB (Return to Broker) is pretty high. The below is from the fund's Facts Page (ask if there are any fees to buy):
Total Fees and Expenses are 0.96% inclusive of the fee waiver (2.36% without the fee waiver). Total Fees and Expenses includea management fee estimated at 1.40%; acquired fund fees and expenses, which are estimated at 0.69%; and other expenses, which are estimated at0.27% as of July 29, 2024 for the current fiscal year. Additionally, Cliffwater has entered into a written fee waiver agreement providing that it will limit the Management Fee it charges the Fund to 0.00% through June 30, 2025 and to 1.00% from July 1, 2025 through June 30, 2026.

In response to the replies above, the funds would be administered through Arcus Capital Partners

Arcus Capital Partners

I believe the fund I am asking about has a minimum investment of $100,000, but the firm has a minimum investment of $500,000. They are also going to pitch another Cliffwater fund, CCLFX (Cliffwater Corporate Lending Fund, essentially private credit) and BXINFRA (Blackstone Infrastructure Strategies) and BCRED (Blackstone Private Credit Fund). Those options, however, would be put in place if I wished to shift the account towards income.

CCLFX

BXINFRA

BCRED

As to the fees, the CPEFX fund is essentially a private equity fund. I don't know if the fees outlined are in line with industry or not.

Thanks again for the responses.

nactownag said:

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I think this is a good "starter" private equity investment.

The main thing that's attractive about this investment is it's easy to buy it. Basically trades a lot like a mutual fund. It's called an interval fund. You can get money out semi annually.

It owns a lot of secondaries which are generally speaking a less risky way to invest in private markets.

That said I think this is great for folks with a net worth
In the 1mm-2.5mm range. When you get into the qualified client or qualified purchaser level there's other investments that become available that I think I'd rather you own.

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Thank you. What would you rather own, given what I have outlined as to the goals of these funds?

It's hard to say because it really just depends on your risk tolerance and time horizon. But it seems like your goal here is to get a reasonable return without investing in the public markets and public fixed income.

I'm completely on board with the idea of investing in private equity and credit. I also like secondaries as well. But you could also look at trying to find some good individual companies to own like SpaceX or Stripe if you're a QP. Or perhaps you could consider a Vista Equity or a Veritas Capital as a drawdown fund that is very niche like vista invests in enterprise software. If you listen to Robert F Smith talk about why you should invest in enterprise software, you'll want to give him all your money. Averaging roughly 30% net of fees since 2001 I believe. Or you could buy in the new vintage of Blue Owls GP Stakes fund which is a really interesting idea. You basically own the GP of the PE firm…so when others are scoffing at the idea of paying such high fees to these managers you can profit from those fees by owning a GP interest in the PE firms.

So again it's not that I'm against what your advisor is trying to do with getting into PE and PC and PI. In fact I agree with it completely. And I like the funds that he's directing you to as well. It's just that they are internal funds which means it's really easy to buy (no paperwork for you to sign).

So typically we use interval funds when someone is in between the 1-2mm net worth range and when you cross into the 5mm range there's more options to consider. More paperwork to do them as well which is a hassle but I think there are some things to really look at.

Thank you. I am not sure exactly how the Qualified Client or Qualified Purchaser definitions are determined. I have, between retirement and non-retirement accounts, over $8 million in funds. I am still employed and I have a source of revenue outside of my employment and these investments.

The funds I am planning to invest are to go into a Generation Skipping Trust. My college age son is the beneficiary, and I am the Trustee. An income stream will come into play after the Principal comes in (which will come in stages until the Estate is closed). So, my hope is to never touch the principal until my passing,
perhaps tap into some of the revenue stream, perhaps not. Most of everything I have is at Schwab, and I do have about $4 million of the total there with an outside investor - Scharf Funds.

Ref Qualified Investor, often that is determined by the brokerage offering the product. Some firms will tack on minimums higher than what the product specifies, particularly if they feel it's risky. For example there are a ton of funds and ETF's Merrill won't let clients buy, even in a self-directed account.

Congrats! Well done.
Schwab is a good custodian. The largest for RIAs out there.

Feel free to reach out if you want to talk offline about this further. Happy to answer any questions or talk in depth about options.

www.holisticplanning.com

Qualified client and purchaser are defined by the SEC.

Roughly 2.1 minimum net worth to be QC
5 mm net worth to be a QP.

nactownag said:

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Congrats! Well done.
Schwab is a good custodian. The largest for RIAs out there.

Feel free to reach out if you want to talk offline about this further. Happy to answer any questions or talk in depth about options.

www.holisticplanning.com

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Just emailed to the hello@holisticplanning.com site and subscribed on Youtube. Thanks again

Isn't the typical PE fee 2%? As in 2 and 20%? I wouldn't care about a 1% net fee if they are bringing down 20%+ annually.

The way I see it
If the fund wins and post good returns:

• The fund managers win with little to no skin of their own in the game
• Your broker wins with no skin in the game
• You see some returns -- AFTER everyone else got paid

If the fund gets a mixed bag of winners and losers:

• The fund managers get paid and take a cut of the winners and get service fees for the losers
• Your broker gets paid for putting you into the fund
• You might break even on the leftovers from the winners returns vs the losses

If the fund picks losers:

• The fund managers get paid
• Your broker gets paid
• You're left with nothing

Yep, I misspoke. I know what that means.

I am meeting in a few days with the outside investment group. This is from an introductory email. Does anyone here have any experience with such a fund, and if so could you tell me how they offer a tax advantaged strategy? Is this from a "tax loss harvesting" strategy typically, or is there something different that they are using? Again, my goal for these funds is pure growth, I do not want any income for several years, and avoidance of paying the taxes on the Trust the funds will be held in is very important. TIA

AQR TA Delphi Plus Strategy

• Delphi Plus is a tax aware alternative investment which seeks attractive pre-tax returns with a tax aware component, through two complimentary strategies, Long-Short Equity and Trend Following.
• For clients with high ordinary income through employment or investments, the Delphi Plus strategy seeks to provide market based pre-tax returns with simulated After-Tax Federal returns though expense allocation. The attached information booklet profiles the strategy.
• The fund returned 14.5% pre-Tax and 25.1% net-Return (Simulated Federal After-Tax) since inception (2021).

The tax advantage nature of this fund really depends on what other investments you have outside of this fund / AQR and what your objectives are. AQR Delphi specifically generates ordinary losses and capital gains.. Depending on the market, they will also obviously have the goal of increasing NAV/unrealized value. So it's really a tax transformation strategy where you capturing the delta (~17%) between ordinary and cap gains rate, with a little left over in terms of ordinary losses.

Why does this matter? If you have other outside investments that generated a bunch of ordinary income (I do), you can use the losses from Delphi to offset that income. Note, for purposes of being an investor in Delphi, you are treated as an Active Investor with those losses treated as Excess Business Losses which can offset up to $600K of W2 income (for married filed jointly) tax payers.

For the cap gains piece, you can pair that with a another tax loss harvesting strategy to offset those gains as well to defer further income.

The "tax awareness" of this strategy doesn't make much sense for someone unless they have a bunch of other outside investments where tax deferral can be managed.

Thank you. The funds would be held within a Trust, and the Trust will also receive monthly income. My goal would be to offset as much of that income as possible while maintaining growth, due to the rather severe taxation that the Trust will have to pay. I may or may not be interested in doing this outside of the Trust as well.