Introduction to Private Equity Investing
Private Equity Investing is investing into privately owned companies.
A private investor can inject capital into a business that needs
it. In return they will receive part-ownership in the company.
The principle is the same as investing in the stock market, however,
there is much more room for growth if the company you invest in
takes off. Venture Capitalists are private equity investors on
a large scale. They make big investments expecting massive returns.
Even on a low budget you can be a private equity investor.
In this article you will discover:
* What is Private Equity Investing?
* How Private Equity Investing plays a part in your portfolio
What is Private Equity Investing?
Private Equity Investing covers investments in unlisted companies
at various stages of development. Private Equity Investment is
often in the form of funding but may include a combination of
funding and debt. The major portion of the investment return is
realised when the company or business is sold or listed on a stock
exchange. This sale date is normally determined before
the capital is invested. The two main kinds of Private Equity
Investing are Venture Capital and Expansion Capital.
Strong Venture Capital candidates are normally start-up
companies that have innovative products that could result in outstanding
growth and superior returns for investors. Start-up
or venture capital investment is generally in the
form of equity into the business with no security.
Expansion or development capital candidates
are established businesses that are capital constrained but have
good growth prospects. Typically, these companies have a history
of profitability but would benefit from additional finance to
continue growing. Investment in companies at this stage of their
growth is substantially less risky than that in start-up companies
but prospects for growth are also far smaller.
Regardless of the kind of Private Equity Investing that takes
place it is clear that the potential for large returns exists.
A downside is also present, however, sound due diligence and understanding
the company you are investing in will reduce the risk of losing
How Private Equity Investing plays a part in your portfolio
Large institutional investors have always been drawn to the private
equity investing. It has the potential to offer long-term returns
that are superior to standard stock investing. Stock market investment
cannot make the returns that Private Equity Investing can.
The Tech Boom that ended in 2001 was an example of Private Equity
Investing occurring on a large scale. Venture Capitalist invested
millions and received tens of millions in return for a successful
floatation. This is why Private Equity Investment offers such
great potential, especially is your invested company decides to
become listed. You then get a share of the profit generated.
For the average investor to have private equity play a major part
in their portfolio they would need to invest in a Private Equity
Fund. This is good option to consider as traditionally Private
Equity Investing has been the domain of the largest investors
due to the size of investment required and long investment terms.
Private Equity is highly illiquid and the scale needed to achieve
an appropriate degree of diversification can be immense. A Private
Equity Fund can offer you great diversification in a number of
Private Equity investment with all the due diligence conducted
About The Author
Written & published by Murray Priestley, Managing Partner
of Portofino Asset Management, private investment managers and
publishers of the Portofino Report. http://www.portofinoasset.com/