Here are some replies and rationalisations to the “killer question” that I’ve heard over the years, which I’ve learned through experience to be very wary of:
– “I wouldn’t buy this for my family, but for this fund ‘yes’ – because this fund has a very narrowly defined Investment strategy and this deal fits it perfectly.”
– “Well my parents are very conservative, so no I wouldn’t put them in this deal but this fund has a different risk-return profile.”
– “It’s very hard to say because my family doesn’t have $400 million to invest.”
– “I could see myself investing my parents’ money in this deal as part of building a diversified portfolio.”
It’s not that these reasons are invalid per se, but rather that we often hide behind these reasons when we have serious reservations about a deal. Incidentally, watch out for that dastardly “d word” (diversification) because it so often is the refuge of the confused mind. Diversification is a legitimate secondary motivation for doing a deal but beware when it is used as a primary justification for an investment decision.
So there it is – it sounds a little sentimental and quaintly old fashioned I know – but make it a habit to ask everyone in your team whether they would invest their parents’ money in the deal. And if the deal leader pauses, qualifies or squirms in their seat – leave the deal alone, there’ll be a better one round the corner.