Many people are generally aware of fractional reserve banking’s extraction of wealth from the economy, but the source of new money’s value is often overlooked as people try to create and monetize capital on their own (e.g., via private funds)…
Fractional reserve banking does create new money “out of thin air”, but that new money is backed by real value: future debt payments supported by verified creditworthy borrowers and collateral.
Verifiably accurate risk-adjusted performance backs the value of investments. Without knowing a fund’s risk-adjusted performance, it’s just an expensive—but hollow—set of documents.
Most people who successfully raise money for their private funds do so by calling in favor cards from friends via a good story. Their capital raising strategy is little more than tapping established networks and creating sufficiently strong new friendships (reaching “know, like, and trust” status). When their capacity to generate new friends runs out, so does the money.
Others completely submit to the whims of family offices who confuse their status with actual financial expertise…
To create and monetize capital at scale—to actually compete in the capital markets—requires highly esoteric knowledge that spans three domains:
Financial Engineering (Math): Design or identify an investment strategy that generates high risk-adjusted returns as measured by all four statistical moments (mean, variance, skewness, and kurtosis) across a minimum of one complete market cycle.
Securitization (Law): Create a compliant investment vehicle that fills performance holes in capital markets (regardless of the traditional structures adopted by each asset class).
Distribution (Marketing): Compliantly sell the investment vehicle to institutional allocators or retail investors at scale by providing them the irrefutably best solutions per their individual needs.
…and all of it is covered in The Shadow Banker’s Secrets: Investment Banking for Alternatives.
To get started in the game of capital creation and monetization, read The Shadow Banker’s Secrets, then schedule your free private consultation.
The Fed's Transfer of Wealth