Complete Guide on Private Equity


private equity

What Is Private Equity

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By definition, private equity is the investment of capital into companies with the expectation that those companies will generate returns on that capital over time. This distinguishes private equity from venture capital, which is investments into early-stage companies with an expectation for extremely high returns in a very short period of time. Venture Capital involves investing large amounts of money into startups.

As a private equity investor, you’re expecting longer-term returns and may be content with getting smaller returns more frequently than an investor in venture capital might. There are multiple different types of funds that investors can get involved with to help their portfolio companies succeed while they wait for the return on investment (ROI).

What Kinds Of Private Equity Funds Are There?

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Real Estate Investment Trust (REIT) – This type of fund invests exclusively in real estate. The cash flow you can expect from this kind of fund is generally higher than most other funds, but the investments are also illiquid because they require a longer holding period. However, once they’re sold a large portion of the profits can be distributed. This makes it a great option for people who want cash flow from their investments but don’t have the liquidity to make them work in most other funds.

Crowdfunding – This type of fund typically invests in projects with lower risks and smaller payouts. In some cases, you can expect a return within a few months, but they typically involve more risk than most other funds. That said, you’ll still make a profit regardless of the type of assets in which your fund invests.

Furniture-producing Private Equity – This is one of the most popular options when it comes to private equity because it offers investors a nice middle ground. You can expect lower returns, but they’re still pretty high-yielding and the fund is typically fully liquidated within a few years. It’s often popular among investors who need money for their children’s college tuition or some other large expense.

Funds of Funds – This type of private equity investment involves putting your money in multiple funds. The ROI is generally lower than what you’d expect from single funds, but your chances of losing money are also much smaller. That said, it’s worth noting that the fees tend to be higher in this kind of fund than they are in most other types so try to avoid them unless you’re working with a reputable investment firm.

The Benefits of Private Equity Include:

-access to capital

-diversification

-exposure to different types of businesses and industries

-professional management

The Downsides of Private Equity Include:

-lack of liquidity

-higher risk

-requires a longer holding period

-less transparency

-higher fees

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