Modern and savvy investors understand the importance and benefits of investing in a private equity fund. This investing avenue opens up a whole new world of potentially lucrative deals that you could be missing out on. By pooling your money with other investors who share your financial goals, you can purchase real estate you might not be able to afford otherwise. While this investment strategy can be high risk, the reward potential is also very high. Here’s what you need to know to decide if a private equity fund is right for you.
What Is a Private Equity Fund?
A private equity fund is when you combine your investment capital with that of other like-minded investors who want to put money in private companies, which aren’t publicly traded on any stock exchange. In recent years, private equity funds have gained popularity because of their high earning potential. Young companies often experience large growth in their early years, which can make them profitable if you strike at just the right time. Through a private equity fund, you can pool your money with others to provide just the right influx of capital a company needs to succeed.
Private investing in a company typically means your money isn’t very liquid, sometimes not providing returns for up to seven years or longer. Depending on the private equity fund, you may receive dividends on your investment that begin paying sooner. Historically, private equity funds have shown strong returns, making them a solid part of any real estate investment portfolio. It’s important to talk to a professional financial advisor, such as our team at Titan Funding, before investing in a private equity fund to ensure you make the best decision about your money.
Benefits of Private Equity Fund Investments
As you investigate your investment options, you’ll find that private equity funds have many benefits. We’ve put together this list of the top reasons to invest in a private equity fund.
High Returns
The goal of a private equity firm is to purchase a company and add value to it. By having a plan in place for growth and expansion before putting any money forward, private equity firms can provide solid returns. By purchasing distressed companies or those that have excellent potential but are currently struggling, a private equity fund can infuse the business with the cash it needs to get to the next level or overcome a rough patch.
Company Involvement
With private equity, you’re holding shares of a private company, meaning you may have some sway in how the company operates. This gives you more control over your portfolio because you can influence changes that help make a company more profitable. To have any influence over the operation of a public company, you have to have a lot of shares.
Experienced Management
Having a private equity firm manage your private equity fund brings a wealth of experience to aid you in your investment strategy. Given their experience, a private equity firm can help you decide which private equity funds are most likely to align with your investment strategy. They can also make investments on your behalf using any guidelines you put in place.
Portfolio Diversification
Private equity is a way to diversify your portfolio. Diversification means you own assets in multiple forms, and a solid investment portfolio includes private equity funds. These funds can add a high-earning product to your investments that pays out over the long term.
Limited Correlation
Typically, private equity is not directly correlated with the stock market. This means it provides a sort of inflation hedge if the stock market turns. Additionally, private equity has proven to be more resilient directly following a recession. This might be because private equity firms can buy businesses at a discount during the downturn and quickly turn them profitable when the market recovers.
Diversification and Risk Management With Private Equity
Due to the increasing popularity of private equity funds, it’s more important than ever to diversify to protect yourself. Fund managers are often willing to take more risk for increased profits when investors put pressure on them to make money at a faster rate. However, this can put funds at risk because the potential for losses is higher when the risk is elevated. Diversifying your portfolio is the best way to mitigate and manage risk within your investments. One way to manage risk with private equity is to spread your money out over several funds.
Having investments with multiple private equity managers means you won’t lose all your money if a manager makes a poor choice or two. You should also have investments in more than just private equity, diversifying into many asset classes and types. A diversified portfolio is less likely to suffer from losses if a market sector experiences a downturn.
Aligning With Investor Objectives
Private equity can easily align with your objectives as an investor because you’re more in control of your money and how it’s spent. You’ll often know exactly where your dollars are going before your private equity makes a purchase, so you can ensure they’re used to help a business reach its full potential. Private equity also helps you reach your investing goals because you’re investing for long-term gains that could provide a huge payout when you retire. It’s always good to have both long- and short-term investments that can provide you with cash flow and revenue.
Get Help Investing in Private Equity Funds
If you want to learn more about private equity investing or you’re ready to get help investing in this potentially lucrative asset class, our team at Titan Funding can help. We have years of experience assisting our clients in making smart financial decisions, and we understand how the business world works in South Florida and across the state. This provides us with an edge when it comes to private equity loans. Contact Titan Funding to learn more about private money investing and how it can help you reach your financial goals and beyond.
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