There were so many red flags for investors in Titan Equity, I don’t really feel sorry for them. Here are some tips for investors in private equity, especially private placement real estate and hedge funds.
Pay attention to the promoter’s lifestyle. What kind of car does the promoter drive? If they are driving Aston Martins and Bentley’s then beware. Why would they be asking you for an investment when they are already wasting funds on luxury items? Also, if someone is spending their personal money on luxury items, how careful would they be with investor’s resources? Is the promoter going on fancy vacations and living in a fancy house? What does the promoter’s spouse do? If they are a trophy wife who goes shopping all day, this may put pressure on the promoter to maintain a lifestyle for her and this might cloud his judgement. If you are investing in someone, make sure that person is living an average lifestyle and pouring all his time and money into the project as well.
Make sure you are being provided with adequate financial reports. Especially for private equity investments that involve more than just family and close friends, financial statements should be audited and provided on a regular basis. There is a significant cost to providing audited financial statements, but this cost goes along with a large project with numerous unrelated investors. The other benefit to audited financial statements is that in order for an accountant to sign off, an internal accounting process must meet certain standards. Its not easy to provide audited financial statements and requires a advanced level of management. Smaller projects with a few related investors can get by without audited financials, but other checks and balances should be in place such as providing all investors with access to bank statements in order to keep everyone better informed.
Keep management on track. Sometimes privately funded investments get off track as the founders constantly pivot to new ideas. These founders can’t stay focused long enough on one project and so they spread resources too thin and end up accomplishing nothing. In the case of Titan Equity, they had investments in a retirement home, but also in a townhouse development. These are different types of real estate and management should have been focused on a specific type of real estate such as just retirement homes or just townhouse developments, but not both.
Make sure management is communicating. Sometimes a business project does not always go as planned. There will be times when projects fail and its important that management is transparent and honest to investors. It can embarrassing for founders to admit they have failed, especially to close friends who have invested in their project. But hiding the truth is what ponzi schemes and fraud are made of.
http://www.thestar.com/business/2015/11/27/ontario-securities-commission-investigating-york-region-real-estate-firm-with-ties-to-toronto-fc.html
