Faith Morrow
Private equity investing is a high-stakes, nontraditional investment type, which can be very risky. Private equity funds often buy companies with plans to turn around struggling operations by cutting costs or selling off assets. Private equity investing includes early-stage, high-risk ventures, usually in sectors such as software and healthcare. Private equity funds may also take a controlling interest in an operating company or business and engage actively in the management and direction of the company or business in order to increase its value.
| Characteristics | Values |
|---|---|
| Investment type | Nontraditional investment types and asset classes |
| Investment class | Outside the world of stocks and bonds |
| Investment strategy | Take a controlling interest in an operating company or business |
| Investment approach | Actively engage in the management and direction of the company or business |
| Investment goal | Increase the value of the company or business |
| Investment focus | May specialize in making minority investments in fast-growing companies or startups |
| Investment risks | Opaque investments, as managers aren't required to make regular disclosures |
| Investment lockup | Investors often can't access their money until a lockup period has passed |
| Investment returns | Potentially higher returns compared to public markets, but not guaranteed |
| Investment minimum | Common private equity investment minimum is $25 million |
| Investment opportunities | Direct and non-direct ways to invest, such as mutual funds, exchange-traded funds, SPACs, and crowdfunding |
What You'll Learn
Early-stage, high-risk ventures
Private equity investing includes early-stage, high-risk ventures, usually in sectors such as software and healthcare. Early-stage, high-risk ventures are a type of private equity investment that can be very speculative and therefore very risky. Unless you are willing to put up quite a bit of cash, your choices in investing in the high-stakes world of private equity are minimal.
Private equity funds often buy companies with plans to turn around struggling operations by cutting costs or selling off assets. They may also take a controlling interest in an operating company or business and engage actively in the management and direction of the company or business in order to increase its value. These investors try to add value to the companies they invest in by bringing in new management or selling off underperforming parts of the business, among other things.
Leveraged buyouts add debt, and investors often can’t access their money until a lockup period has passed. The allure of private equity funds is that they can reward investors with higher returns compared to what they might receive investing in public markets—but that’s not guaranteed. There are some non-direct ways to invest in private equity for much less, such as buying a share of a private-equity ETF.
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Venture capital
Private equity is capital made available to private companies or investors. Private equity investing includes early-stage, high-risk ventures, usually in sectors such as software and healthcare. Private equity funds often buy companies with plans to turn around struggling operations by cutting costs or selling off assets. Private equity funds may also take a controlling interest in an operating company or business and engage actively in the management and direction of the company or business in order to increase its value.
There are several ways to get involved in venture capital investing. One option is to join a venture capital firm as an investor or partner. This typically requires a significant amount of capital, as well as a strong network and expertise in a particular industry or sector. Another option is to invest in a venture capital fund, which pools money from multiple investors to invest in a portfolio of companies. These funds may have lower minimum investment requirements and can provide a more diversified approach to venture capital investing. Additionally, some venture capital firms offer accelerator or incubator programs that provide mentorship and support to early-stage companies in exchange for a small amount of equity.
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Hedge funds
Private equity is capital made available to private companies or investors. Private equity funds often buy companies with plans to turn around struggling operations by cutting costs or selling off assets. Private equity investing includes early-stage, high-risk ventures, usually in sectors such as software and healthcare. These investors try to add value to the companies they invest in by bringing in new management or selling off underperforming parts of the business.
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Alternative investments
Private equity investing includes early-stage, high-risk ventures, usually in sectors such as software and healthcare. Private equity funds often buy companies with plans to turn around struggling operations by cutting costs or selling off assets. A typical investment strategy is to take a controlling interest in an operating company and engage actively in its management and direction to increase its value.
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Leveraged buyouts
Private equity is capital made available to private companies or investors. Private equity investing includes early-stage, high-risk ventures, usually in sectors such as software and healthcare. Leveraged buyouts are another type of private equity investing. Private equity funds often buy companies with plans to turn around struggling operations by cutting costs or selling off assets; leveraged buyouts add debt. Private equity funds will take a controlling interest in an operating company or business and engage actively in the management and direction of the company or business in order to increase its value.
Private equity investing can be very speculative and therefore very risky. Although you may be able to find a private investment opportunity that requires as little as $25,000, a common private equity investment minimum is $25 million. There are some non-direct ways to invest in private equity for much less, such as buying a share of a private-equity ETF.
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Frequently asked questions
Private equity funds can reward investors with higher returns compared to public markets. They also allow investors to take a controlling interest in an operating company and engage actively in its management and direction to increase its value.
Private equity investing can be very speculative and therefore risky. It is often opaque, as managers aren't required to make regular disclosures and investors can't access their money until a lockup period has passed.
A common private equity investment minimum is $25 million. However, there are some non-direct ways to invest in private equity for much less, such as buying a share of a private-equity ETF or crowdfunding.
