What Are Private Equity Funds?
- The purpose of this type of investment is to provide a way for institutional and individual investors to pool their money together and invest in equity positions. By putting their money together, these investors can take advantage of economies of scale and make larger returns on their investments. With this type of fund, investors can become partial owners of promising companies and experience substantial amounts of growth.
- One of the features of a private equity fund is the money manager. A money manager is in charge of making the investment decisions on behalf of the fund. The money manager does all of the research dealing with potential companies in which to invest. The money manager is typically very experienced in the financial markets and business management. This manager makes it possible for the investors to utilize a passive investment approach.
- Private equity funds can generate profits in many different ways. One of the most popular strategies that private equity funds use is to buy a company that is not performing well and take it private. The private equity fund can then put the proper management in place and get the company back on track. After improving the performance of the company, the equity firm can then take the company public and generate large returns through an initial public offering.
- Private equity funds provide some benefits to the companies that they acquire. Private equity funds are generally very good at what they do. They are talented at identifying the problems with in a company and solving them quickly. Private equity funds have turned around some companies that were in very bad shape prior to being acquired. This saves jobs and it helps investors make a return at the same time.
- This type of investment vehicle also has a few drawbacks. One common criticism is that these funds do not look at the long-term prospects of the company when making changes. They only take the shortest route possible to trying to increase the value of the company. Another potential problem with private equity funds is that you have to be a wealthy individual or institutional investor to get involved.