How to Invest In Private Equity Funds
Private Equity funds have been a major tool used in advancing the economy of many nations to help start-ups or high risk ventures get their footings in the market place. It is a collective capital that is made available for investors and private firms to utilize in growing their businesses. It is basically used to invest in private equity or unlisted companies. The essence of private equity is to generate a pool of cash that can be used to re-position a company to be able to make more profits, or to help a company invest in developing new lines of products and technologies.
It also helps organizations expand their working capital and strengthen the management and workforce. No wonder many rich accredited and non accredited investors are seriously taking to this and you too can join the train. Although Private Equity Funds is not for small investors because it involves investment that is about One Million US Dollars and above, the fact still remains that the return on investment is overwhelmingly encouraging especially when you invest rightly. That is the reason why your choice of private equity funds manager must be a tested and trusted hand. This is necessary because private equity investors are passive investors.
If you have some huge sum of money and you truly want to invest in Private Equity Funds and make great returns on your investments, then the following options would help you to get started.
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How to Invest In Private Equity Funds – A Beginner’s Guide
1. Start with Private Equity Fund Club
Chances are that you might have heard of Investment clubs; so why aren’t you a part of one? There are various private investment clubs you could possibly start with. Since Equity Fund is all about pooling cash together to be able to meet the required amount meant for such investment, starting with family and friends that can afford this sum might be a great way to start. You could also ask or search for big investment clubs around you and apply to join them
2. Private Equity Exchange Trade Fund (ETF)
You could also buy shares of an ETF. Buying this kind of shares helps you bypass the stringent requirements for individual investors. The good thing about buying an Exchange Traded Fund is that it helps track index of publicly traded companies that invest in private equities. With this type of investment portfolio, you should be aware that you would be charged service fees by your broker for all your transactions with them.
3. Invest In Fund of Funds
Fund of Funds simply means a pool of cash from different investors that is being managed by a firm that are experts in evaluating investment options and know where to invest and the amount to allocate to private equity funds. This type of investment portfolio helps organizations to increase their cost effectiveness. Although the minimum investment requirement for fund of funds is from 100,000 USD, facts remains that with fund of funds, you have the access to invest in various companies of your interest. Also, if you truly want to minimize the risk involved with Private Equity fund, then Investing in fund of funds will be your best choice. Please note that you will be charged layers of fees by the fund of funds manager.
4. The Special Purpose Acquisition Companies (SPAC)
The unique thing about this form of investment portfolio is that you might not have the options of buying into various companies. With Special Purpose Acquisition Companies (SPAC) you would be restricted to only investing in one company per time. Special Purpose Acquisition Companies (SPAC) gives you access to invest in publicly traded shell companies that enable private equity fund investments in undervalued private firms.
5. Venture Capital
Venture capital provides equity capital to companies that are just starting out and to companies that is in its’ growing stages. The indices that make such companies qualify for venture capital is their potential to become profitable in the long run. In some cases this potential may be hidden, but with proper analysis and the right tools, experts are able to predict if a start-up company can become profitable. However, we cannot rule out the possibility of loss of investment with some start-ups or growing company.
6. Buyout Funds
Investing in this type of Private Equity funds means that you are investing in an established firm that is in a financial crisis or management crisis which needs an outright buyout to avoid liquidation for it to remain in business. In this type of equity investment, some of the funds injected into the company are used to clear existing debts.
7. Growth Capital
In the case of Growth Capital, you would be providing funds to help established and tested firms grow beyond the level they are operating. Funds can only be invested if all the necessary assessment and auditing has been done, and it is obvious that if funds are injected into the company, it grows and becomes highly profitable.
8. Get the Best Equity Manager
It is worthy to point out that Private equity fund partnership is usually a fixed-life investment portfolio that has a minimum life span of 10 years and there is always a room for extension. Your preference for a private equity manager must be properly assessed and screened to eliminate unnecessary and avoidable risk and also to ensure you get a good returns on your investment
If you have large sum of cash and you can afford to risk investing it for a long period of time, then you should look towards investing in private equity funds. No doubt the risk involved in equity funds investment is high since an investor can lose all his/her investment if they get it wrong, but you should also know that the annual returns on investment that you might get if rated with the risk is far higher.
We believe that if you take your time to study the 7 key areas of private equity funds explained above, and you carry out your own further research, you would be well informed and well guided in your quest to investing in a private equity funds.
