Understanding Private Equity Funds

Understanding Private Equity Funds

Private equity funds are a great way to to add additional sources of financing for your business. These funds play a huge role in helping businesses with their cash flow and sustaining entrepreneurship. It is estimated that private equity funds are responsible for funding over 50,000 deals a year which are valued at a combined total of several billion dollars.

Understanding Private Equity Funds

The money for private equity funds comes from private sources. These funds are usually sponsored by high net worth people who are looking to expand and invest some money in a business they believe will be profitable. They typically look for good value and solid growth potential.

After a good company is found, the core group of investors gets consolidated into a partnership whose responsibility it is to manage the fund. Other entities are usually invited to take part if they feel that the fund is a good value. The funds typically last for about 10 years before they are dissolved.

How Do They Work?

Private equity investors are always looking out for firms that can offer them high returns on their investments. The only problem is that high returns often come along with high risks. If you are going to take part in high risk investments, you have to be ready for the losses that you may incur.

Most people understand the riskiness of these funds and they are just hoping for a profit in the long run. Watching a fund on a daily basis is like watching a roller coaster. Just look at it like a long-term investment so that the swings do not stress you out.

Fund managers are paid a fee which is a percentage of the fund and a percentage of the profits combined. This ensures that fund managers are vested in the outcome of the funds. They are more likely to work hard for profits if part of their paycheck comes out of the final profits. It is a simple system that ensures managers try their hardest. Most managers make a big part of their profits by selling their stake at premium prices. Managers can make a handsome profit doing this, especially if the fund is very successful.

Private equity investors put a lot of money into businesses. This is a good thing because it can never hurt to have smart people invest lots of money into your business. These people are highly educated and have a lot of experience in the business world. Having this type of wisdom at your fingertips can help you in ways that are unimaginable.

Have more interesting reading on private equity top headlines from David Hand Crescent Point Singapore and Crescent Point Private Equity news site, the leading emerging markets investment management and financial advisory firm primarily targeting in the Asia-Pacific and Middle East regions.

What are some of the factors that you need to consider before investing in private equity?