Private Equity: What successful PE investors do.
Takeaways:
- Private equity investing is a form of financing where money is invested into businesses in exchange for equity.
- Private equity investors invest in companies after raising funds, proper due diligence, by streamlining processes in the invested company with a clear exit strategy in mind.
Private equity investing is a form of financing where money is invested into businesses in exchange for equity. PE is an alternative asset class alongside real estate, venture capital, distressed securities and more. Alternative asset classes are considered less traditional equity investments, which means they are not as easily accessed as stocks and bonds in the public markets.
Generally, high net worth individuals and institutional investors invest in equity of new or established companies which have high growth and higher return potential. Companies with sound business models, strong leadership and management base, and valuable client relationships attract such investors.
What do private equity investors do?
Raise Funds
Private equity firms raise capital from institutional investors, in addition to investing their capital to contribute to the ‘fund’. Institutional investors are usually required to commit a significant amount of capital to be allowed to participate in the fund.
Due diligence
Before a potential equity investment, investment managers typically consider the product or the service of the company, management team of the company, competition in the industry, recent financial performance, valuation, and likely exit scenarios and strategies.
Streamlining operations
The investors do not run the day-to-day operations in the company. However, they guide the senior management by providing advice and support, relating to operations, strategy, and financial management to streamline operations of the company.
Exit strategy
The end goal of private equity firms is to exit the portfolio companies with a substantial profit, by growing revenue during the holding period, optimising working capital, selling the company at a higher multiple than the original acquisition. Exits can also happen as a result of an IPO or acquisition by another firm.
Private Equity Funds
Private equity funds give investors access to a diversified portfolio of private companies that fund managers believe have superior growth potential. These can range from promising start-ups to established companies. Sub-types of private equity funds include buyout funds, growth equity funds, and venture capital funds.
There is a range of different types of private equity strategies. Each has different return-generating potential and risk-return profiles. But all of them aim to deliver returns that are superior to those available from publicly listed companies.
You can read more about private equity funds, different types, their advantages, and disadvantages here.
Who Can Invest In Private Equity Investments?
Private equity funds traditionally cost millions of dollars to buy into, making them inaccessible to all but institutional investors and the extremely wealthy. ADDX, however, democratizes private equity investing by making it available to investors for as little as S$10,000 to invest in primary offerings and as little as S$100 to trade.
To qualify as an ADDX investor, investors need to meet one or more of the following conditions:
•Yearly income of at least S$300,000 or
•Net financial assets of at least S$1,000,000 or
•Net total assets of at least S$2,000,000
The Bottom Line
Private equity funds give investors access to a diversified portfolio of private companies that fund managers believe have superior growth potential. Examples of private equity funds include buyout funds, growth equity funds, and venture capital funds.
ADDX is your entry to private market investing. It is a proprietary platform that lets you invest from USD 10,000 in unicorns, pre-IPO companies, hedge funds, and other opportunities that traditionally require millions or more to enter. ADDX is regulated by the Monetary Authority of Singapore (MAS) and is open to all non-US accredited and institutional investors.