RAE'JOHNESMITH
WHAT IS A J-CURVE?
While interning my sophomore and junior summers as a summer analyst at Goldman Sachs, I worked as a member of a team responsible for sourcing clients to commit to private equity investments (promise to invest in assets that are privately owned).
As a member of this team, I came to understand how truly unique private equity investments are as an asset class--mainly for having what the good folks on Wall Street like to call a "J-curve."
The J-curve is a term used to describe the graphical pattern of typical performance exhibited by private equity investments over the life of the investment.
WHY THE J-CURVE
In my opinion, the concept of a J-curve is applicable not only to investments in new businesses via private equity, but also to investments in a post-secondary education (mine in particular).
For the past three years, I have been making a “substantial” investment in my college education at Spelman College with little to no returns from this investment in the interim. However, now, in the fourth year of my investment as a college senior, I have begun to reap the rewards of a Spelman College education with the acquisition of a full-time job offer.
In addition to illustrating my knowledge of the financial services sector, the concept of the J-curve (declining returns now in exchange for positive returns later) perfectly displays my growth as a writer since entering the gates of Spelman--from huge investments in classes, paid and non-paid internships, etc. to a full-time job offer in the industry and firm of my choice.
In the first four to six years of a private equity investment, for instance, an investor can expect to make substantial contributions to these investments—with no return. By the fifth or sixth year, however, the investor is typically no longer required to make financial investments to the invested asset and can prepare to reap “colossal” rewards—typically over 20% in annual returns!
Graphically, this generation of declining negative returns in the first four years and then increasing positive returns thereafter depicts the shape of a “J”; hence, the J-curve.
NAVIGATING "THE CURVE"
In the investment industry, once an investor has agreed to commit funds to a private equity investment, managers of those investments sporadically call capital (money or funds) from the investor throughout the investment period. These requests for capital are referred to as capital calls.
Under the “Investments” tab, I refer to my accumulation of written work at Spelman College as “capital calls,” with “First-Year Capital Call” representing my written work from freshman year, “Second-Year Capital Call” representing my written work from sophomore year and so forth. Access the “Investments” tab to take a look at samples of my written work since entering Spelman College.
The returns to such investments are detailed under the “Distributions” tab while a current assessment of my development as a professional writer is provided under the “Annual Report” tab.