What it has done is force investors to actually perform due diligence and require transparency in deals. Surprise, surprise that this is actually a good idea! As Dale Swensen, CIO of Yale says, “No sensible investor manages private assets passively.” Investors and their advisors were passively managing assets and not asking the right questions. This happens in every boom cycle – the only question that matters is “What’s my return going to be?!”

When the focus moves to why this is a good deal and who else is involved, bad deals don’t get funded. And the best deals attract capital even in tough markets.

Here at Trinity Private Equity Group, we have been delivering presentations across the nation on where private equity fits in an investors portfolio – and how it drives value. What Venture Populist points out and most investors have never learned is how private equity and venture deals drive value. Those that get it, don’t have Madoff-syndrome because they are more actively engaged.

There are a few of us who believe in alternative investments such as real estate, operating businesses, private notes/financing of business and even venture capital.

One option for investors to consider is using a “self-directed IRA” along with an LLC to invest in the start-up or growth of a venture.

Most investment advisors won’t go near this because they have no vested interest in the venture and don’t know how to get paid from it.

This is something that a true “advisor” can help with the education of the option and even possibly with the due diligence.

And business owners or those who have made their wealth through operating a business or owning real estate will certainly understand the benefits of investing in such things.

Heck, an investor can achieve the diversification we speak about not simply by buying GM, BA or ATT but by buying into a variety of businesses or real estate that are geographically diverse.

Venture Populist has spent most of its blogging space thus far making the case for a new paradigm for asset allocation (by challenging the traditional methods). What we have not done (yet) is define a new paradigm and what we really mean by “private venture investment” (PVI).

When VP speaks of PVI we are primarily referring to (and advocating) direct investment in private ventures. According to the Kaufman Foundation, about 495,000 new businesses were started each month between 1996 and 2007…and no material decline in entrepreneurial activity is expected during this recession.

This type of direct private venture investment requires effective due diligence upon the part of advisors, but the responsibility of success or failure lies with the entrepreneur, unlike the hedge fund frauds that you referenced where middleman machinations can defraud unwitting investors.

As to your remaining comments, I could not agree more. Entrepreneurs have a responsibility to design their new ventures in a responsible manner that embraces accountability, transparency and sustainability…anything short of that is not only a missed opportunity, but simply bad business.

Thanks again for your comments.

You’d hope that after being diagnosed with cancer, a survivor would deepen his appreciation for his own life and seek new ways to embrace his surroundings. So too mush the PE “community” begin anew by embracing concepts of trust, transparency, and accountability. In the handful of offerings I’ve seen lately, it mostly appears to be business as usual. If investor confidence were not enough to drive a change in course, you would at least think that the demand for sustainability, the threat of regulation, the cry for accountability and transparency would drive a change to the tired business plan.

I think that the economy (and the likes of Madoff, Petters and many others, as well) has given PE an opportunity to be the new market leader. As a good friend once said, the last thing we need is more regulation and management of innovation and business by the government. Well PE needs to show investors, the government, NGOs and many others that true value, innovation, sustainability and accountability can be developed through private venture investments. In the end, not only will the advisors regain trust and re-kindle the flow of money, but we will begin to realize improved portfolio performance as well.