Why Every Future Millionaire Needs To Start A Fund

Welcome back to Investment Fund Secrets. I'm Bridger Pennington, and today I want to talk about why every future millionaire should start a fund. All right, today I'm excited to talk about this, and I am very, very passionate about why everyone should start a fund. And I was reading on the articles online about private equity, and I read this article. I'm going to read it for you word for word, exactly what this little cringy blog writer was writing, and it just bugs me so bad because they have no idea what this is going on in the world, but they said this about what we're doing. They said, Can we be serious for a minute about this? The odds of you starting a private equity fund are next to nothing. The startup costs are too high, the regulation too complex. The reality of raising the millions of dollars you need is just way too difficult. Impossible? No, but highly, highly unlikely. In my view, the easiest way to play private equity for everyday investors is to model You're investing on someone like Warren Buffett. Don't speculate, don't trade, and trade your personal private equity. Ah! Like, that just bugs me so bad, and that's why I'm so passionate about this topic. That's why I wanted to start this podcast and show and this movement to get this garbage out of people's minds about private equity. And that's actually— looking at it though, it's actually good for people like you and me because that takes away a lot of competition. A lot of smart people are gonna read that and just turn away. But this little guy sitting in his little room writing his blog, and I kinda researched him, has no idea about private equity, about what's actually going on and how people like you and me are changing the financial world. And the dozens of people that I know that started from nothing and started their own private equity venture capital and hedge funds and are making a killing doing it. So today I wanna talk about why every future millionaire should start a fund. Reason number 1 though, I gotta jump in first, is what is a fund? We're getting a lot of new people on here and I want to talk you through that. So a fund essentially is this: you have investors, what we call limited partners. They are giving you money into a pot— not you, but the fund, a big pot— and then you as the fund manager get to dip into that pot of money and make investments to hopefully give your investors a profitable return. So for example, you're going to take that money, put it into a pool, and you can grab the money out and you're going to start doing real estate investing. I have a good friend, he's been a great real estate investor. but just did small things. He did fix and flips, he would put $25,000 down on a house, then fix it up for $10,000 and sell it for $60,000 and he'd make $15,000 a house and he'd do about 2 or 3 houses a year and he made an okay living and had a house for his family and did okay. I finally asked him like, why don't you start a fund? He said, that's kind of a good idea, and he had thought about it before and I said, dude, you can do this. We sat down, we mapped it out, he now has raised over $20 million and he does the exact same thing. Just on a larger scale. Instead of doing $25,000 homes, he's now doing $2 to $5 million homes. The second reason why I tell people to get into funds is the tax benefits. People always get mad on the news, right? Donald Trump, Mitt Romney, Carl Icahn, guys like that don't pay taxes, right? Everyone's mad at Trump. Trump, you pay like 14% taxes. It's like, it's true, and it's because he's figured out this system of running a fund. And it's not his fault. It's not the government's fault. The government has done this on purpose. This isn't a loophole. This isn't a backdoor to like get away from paying taxes. The government— SEC was formed in 1934, and what they did, they tried to set up rules and regulations to incentivize investors to invest in America. They wanted to incentivize people to come here and bring their money to America and to incentivize fund managers to set up these vehicles to do so. So what they did, they said, typically, and right now you'll look at your paycheck and look at income wages. If you were a CEO and you made $5 million this year, you're gonna pay about 30% to about 50% in taxes depending on which state or territory you live in. 30% to 50% of your paycheck is gone. Half gone to the government. A fund manager is gonna pay about 20% or less. And I'll teach you in future episodes how to move that money through the Cayman Islands. I mean, there's tons of different things how to move money. And they've done this on purpose. The IRS, SEC knows this is happening and they like it. They want it to happen because when you set up a vehicle that's lucrative for you and the investors, investors from all different countries are going to invest into your fund into America and then they're going to get tax breaks for doing so. So that's the second biggest reason why you should do this and why I tell every single person to start a fund whether you want to be a fund manager or not. If you're an entrepreneur and run your own business, the government right now taxes you a ton of freaking money. And you probably already know this. If you make a million dollars, you don't take home a million dollars because you got to pay yourself and then pay taxes. You kind of get double hit on taxes. If you start a fund to be parallel with your business, you can move that money over into an investment vehicle and put that money into real estate or invest that money into other funds. There are plenty of massive funds that'll take your money and they— you can give it to other money managers and you save a ton of money on taxes. Don't pay 50% in taxes. Pay 20%, 16%, 15%, 14% on taxes. These are the secrets of the wealth that I'm trying to give to the world because there's blog writers out there that are just spitting crap garbage on the internet and I want to get rid of that. I want to tell you a quick story as well because you might be asking yourself, and I did this for a long time, Bridger, this is great and all. The funds are cool. I get why it's cool. You don't pay lots of taxes. You can pay lots of money, but like what's the big deal? The big deal and my next point is the sky is the limit with funds. For instance, I went back to that example of you got a $5 million— let's say you build up the corporate ladder forever. You got a $5 million salary as the CEO of a big company. Man, you did it. 20 years of hard work. You're at the top. Right? You start a fund and you manage $100 million, and that's not that big in a fund world. That's still— they call it a boutique fund. That's actually very small. So if you had a $100 million fund, you guys got a 20% return, you did great this year, awesome. Now you have $20 million. I'm just using round numbers so it's easy math. Usually about 16% goes to the investor. They'll take that home. It's awesome. They just made $16 million. And then you as the fund manager will take home carried interest, usually about 4%. Depends how you set up your fund, and we'll talk about that in future episodes. You take home 4% and everyone's like, oh wow, 4%, that's nothing, right? No, that's a lot of money because you're taking home 4% of the whole pot. So you're taking home 4% of $100 million, right? You're taking home $4 million to your pocket and you pay capital gains tax rates. You pay 20% instead of your CEO buddy that's paying— got $5 million but paying about 50% taxes, okay? My fund just this last year, last 18 months, we've gotten a 66% IRR. On our fund, which is so exciting. Like, I'm so excited about that. I hope it keeps going. Every quarter we've done about a 66% return for— if you annualize it for the year. And those investors, guess what they do? They love to talk with each other, and it's very easy to jump. We just doubled our fund size because of that, right? We're probably going to double our fund size again this next quarter because of those things. So when you have a $100 million fund, you do well, you can grow and grow and grow. Ray Dalio runs $160 billion— excuse me, billion with a B— private equity fund, largest in the world. The sky is the limit. Now, you might be asking yourself, Bridger, this is great and all, that's cool, I would love to start a fund, but I don't know, I don't— I'm not a good investor, I'm not a good stock picker, I'm not good at buying companies, I'm not good at venture capital, I couldn't be on Shark Tank, I'm not good at real estate, what do I do? This is exactly what you do. I'm gonna tell you the story of my dad, who now runs a $15— they're $15.1 billion Real estate investment fund. I mean, they're massive. He's got about 3,000 employees. They're huge, right? And my dad, I've told you in previous episodes, grew up in the ghetto, North Las Vegas, went to a crappy college, was a scrappy entrepreneur his whole life, and figured out what I'm telling you right now. Figured out what a fund was, because not everybody knows what a fund is. But he said, I'm not smart enough. I don't— I can't find— I can't find real estate deals. What do I do? So he went out and found 3 or 4 guys who have spent their whole lives doing real estate. And these guys were experts in real estate, they just kind of sucked at the business side of it and raising money and capital. He said, guys, let's come together, let's form a partnership. I'll help structure the fund. And then he got another partner who was good at raising money. He said, I'll structure the fund. Hey, partner over here, you help raise the money. You guys help do the real estate and let's do this thing. Their first fund, they raised $13 million, which is really small actually for funds. They raised $13 million, their first fund did well. Their next fund, they raised $35 million. Next fund, they raised $235 million. Next fund, they topped just over $500 million, and their 4th fund, they raised just over a billion dollars. That happened within 3 or 4 years. And my dad, not that smart. Still this day, I'll ask him real estate questions, he's like, I have no idea, I don't know. Like, Dad, you managed $15 billion of real estate. He's like, I know, I just don't know how to do it. He said, go ask my partners, right? So I'll go talk to his partners about real estate. He seriously does not know anything about real estate. He knows a little bit about raising money but not a ton. He has partners over here that help him raise money, partners that do real estate, and he has combined the 2 into a massive private equity company. And guess what? He pays really little on taxes. And the funnest part too is people now, because my dad has made some money, will come and pitch him like I did. I pitch him on investment ideas, say, hey, John, we got these great investment ideas. We'd love to pitch you on this. They'll pitch him the whole thing. He says, guys, this is great but I have such a good deal. He's like, I just take all my money and put it into my own funds. Because guess what? I don't pay a management fee. And I double dip on the fund. So, back to that example, that $100 million fund. The $16 million goes to my— part of it goes to my dad as the investor. And then he's also the fund manager. So, he makes money as the fund manager, that other 4% as well. So, if the fund, the investors get a 16% return, he actually takes home about a About an 18% or 19% return every year. And he tells people, he's like, if you can beat that, if you can beat that investment that we've done for the last 9 years, we've got about a 20% return for the last 9 years, come talk to me. And everyone kinda leaves his office kinda sheepish and says, I can't really beat that. And you can't. When you're a fund manager, you can double dip and invest in your own funds and you pay that capital gains rate. And it's an incredible So this is why everyone should start a fund. If you're a business owner, you don't even want to be a fund manager, that's fantastic, that's fine. Make a parallel business to your business currently and have it be a private equity fund. Have it— and I'll tell you how to do this in the future, but structure it that way. And you can just take all your earnings and put it right into that fund, that investment vehicle, and take that, and then you can invest in funds like mine or my dad's or anybody's, right? And I'm not advertising or telling you to do that, but you can go find funds out there of experts. You don't even have to do this. You can save so much freaking money. This is the secrets of the wealth. Thanks. See you on the next episode. Yo, if you're just starting out, you probably have a lot of questions. That's awesome. I want to hear them. So please go to investmentfundsecrets.com, submit your questions, and if I like your question enough, I actually want to bring you on the show with me to ask those questions live to me, and I'm going to bring on another investment fund manager to answer them for you. So if you're interested in that, please submit a good question on the website. Again, that's