Alternative investments are alternatives to traditional investments such as: Private equity, Venture Capital, Infrastructure, Real estate, Timberland, Managed futures, Credit Instruments and Hedge Funds.
The basic definition of private equity is to invest in private companies (including investing in public companies, and bringing them private).
Investors in Private equity are Institutions (Pension Funds, Endowments, Foundations) and Individuals (Family Offices and select High Net Worth Individuals). This video also details the different types of private equity investing: Direct Investing, Fund Investing, Co-investing and Secondary Investing.
Limited Partnership Agreements are between General Partners and Limited Partners (Investors). Limited Partners are: Institutions (Pension Funds, Endowments, Foundations) and Individuals (Family Offices and select High Net Worth Individuals). A General Partner is a Private equity.
Private equity firms make money primarily through two sets of fees: Management Fees
and Performance Fees.
Private Equity Firms find good deals using Proprietary Deal Flow – using: Connections (Lawyers, Accountants and Private Equity Firms), Industry Knowledge – Focus on a specific industry and Marketing – A good Private Equity brand will attract sellers.
Private Equity Firms should never trust a company’s numbers when they are trying to sell.
Due diligence is research which allows for mitigation of risk. Due diligence, however, is rarely simplistic. There are lot’s of considerations in this process.
As a Private Equity Firm, you have multiple options on how to sell your portfolio company: Sell to the public markets through an IPO, Sell to a strategic buyer, Sell to management(through a management buyout), Sell to another PE Firm or Recapitalize the company and pay itself dividends.
As Mark Twain said:
“The man who does not read has no advantage over the man who cannot read.”
Investors can invest in Private Equity in four different ways: Direct Investment, Fund Investing, Co-Investing and Secondary Investing.