How to Start Investing in Private Equity

 

The world of private equity may seem like a distant and inaccessible world for most people. However, the potential for high returns is a strong incentive for even average investors to get involved in this market. If you have some savings and are looking for ways to grow your money faster than standard investments, then you should consider investing in private equity. In this article, real estate and private equity investor David Ebrahimzadeh will discuss what private equity is, how it differs from public markets, the different types of private equity, as well as how you can start investing in this asset class.

 

What is Private Equity?

Private equity is the investment of capital in privately held companies. In practice, this generally refers to companies that are not listed on public stock exchanges. Companies can be privately held by a small group of individuals or a larger group of investors. Private equity funds will invest in companies of any size and in any industry, but they often invest in companies that are not listed on public exchanges.

 

How does Private Equity Differ from the Public Markets?

There are several key differences between investing in private equity compared to stocks and bonds in the public markets. Firstly, the timeline of returns is different. Public markets can be very volatile over short periods, but are generally less risky over long periods. With private equity, the risk is generally higher, but so are the potential gains. Public markets are available to anyone who has enough money to purchase stocks or bonds. Private equity tends to only be accessible to people who have a large amount of capital to invest. This amount will vary depending on the type of private equity fund. Private equity funds also generally have a fixed end date. At this time, the fund will be wound down and investors will have to sell their stake in the fund and cash out, explains David Ebrahimzadeh.

 

Types of Private Equity Investment

There are several different types of private equity investments, the most common being buyouts, venture capital, and growth capital. In a buyout fund, investors purchase the ownership of a company, liquidate some or all of the assets, and then resell the company at a profit. Venture capital investments are when investors provide capital for start-up companies in exchange for a percentage of the company’s equity. Growth capital investments are made in companies that are already established and may be in need of additional capital to expand their business operations. Other less common types of private equity investments include mezzanine debt, credit, and real estate.

 

 

How to Start Investing in Private Equity?

Some types of private equity investments can be made directly with an individual fund. However, as David Ebrahimzadeh, the presidentof Corniche Capital explains, it is more common to use a private equity fund as part of a larger money management fund. This fund will include a mixture of different asset classes, including private equity. Before you decide to invest in a private equity fund, you should have a good understanding of the risks, returns, and other factors associated with this type of investment.

 

Bottom line

Private equity is another option for an investor’s long-term investment strategy. In many ways, it’s an ideal choice for those who would like to start investing but don’t have a great deal of knowledge or experience with stocks and bonds. In order to make the most of this investment opportunity, you’ll need to find a fund that fits your risk profile.