Here’s everything you need to know about private equity funds

 As an investor wanting higher returns, you would always want to diversify your investment portfolio. One of the best ways to do that is through the private equity market. Private equities are essentially the shares of a private company; you would not find them listed in any public indices and investing in them is quite different from getting involved with public market shares.

To know more, read on –


What exactly are private equity funds?

 

Private equity funds are nothing but the capital that the fund managers use to invest in private companies that they analyze and conclude to have a very good potential to grow in the coming future. A few examples of private equity funds are shares of a unicorn startup, a highly profitable private company, buyout funds, growth equity funds, and venture capital funds.

To maximize the return on investment, fund managers use various different strategies that have different profit potentials and risks. However, each of these is designed for only one thing: earning massive returns and surely bigger ones than those of the publicly listed companies.

What are the different types of private equity funds present in the market today?

 

There are 3 main types of private equity funds -

 

  1. Funds for the growing companies - These funds are specially allocated to the companies that are expanding at a very quick rate. Such companies have an excellent probability of growing in the coming future. However, once any company enters this stage they are not that far from their saturation point. The companies that do go beyond this saturation and still grow, turn into a public entity in an effort to get access to a wider fund potential. Owing to this, growth equity funds are used only to buy minority stakes in such private companies.

 

  1. Funds for the new companies - This is the money fund managers allocate to buy stakes in private companies that are still in the start-up phase. These companies have an amazing risk to reward ratio as there isn’t much to lose at the start but a lot to gain if successful.

 

  1. Funds to acquire major stakes - These funds are allocated for buyouts; the goal of these is to replace the current controlling company with their own team of management to increase the profit potential of their investment. Such investments are made in companies that have a lot of untapped potentials but are unable to capitalize on the same due to bad management or other such fixable problems.

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