Private equity investment is a high-stakes investment game where an individual investor puts his money down and entrusts it with a private equity firm, which then pools all the money by individual investors. How the combined is spent is decided on by the fund managers, and the individual investors have no say in the matter. In general, though, a private equity investment firm uses the money to invest in a company that has the huge potential for growth.
The biggest brands in the world like FedEx became household names thanks to the help of private equity investment. The individual investors who invested their money in the company that invested in FedEx have been enjoying huge returns ever since, as have the individual investors who entrusted their money to the equity firms that nurtured Cisco and Intel.
If you want to get a huge return on your investment, then you absolutely should try your hand in private equity investment. There are many private equity firms out there that accept willing investors, although they do not go out actively advertising their services.
While in the past, you could only participate if you have $25 million in the bank, now you can participate for as little as $250,000. We know that that is still out of reach for most investors, however, there is a way that you can participate indirectly. You can invest in a mutual fund that has stakes in a private equity fund.
A mutual fund pools the money of different investors and diverts them to high-yield investments. They are a mix of bond, stocks, and yes, private equity.
In recent years, there have been companies that have lowered the opening participation of private equity investors to $10,000. But 70% of the money goes to the growth of the company that the parent company of the private equity firms, so there is a little bit of conflict of interest there, and the appropriation of 70% of your money to the same company may not be in your best interests.
In any case, if you would do some research, we are pretty sure that there are private equity firms out there that have a low participation rate and do not invest such a high percentage of their fund to one of their own companies.
Investing in private equity is highly profitable with interest rates reaching 22% per annum, which is much higher than Nasdaq’s 5.6% (as of June 30, 2006). However, you should know that the profitability comes with its own risks.
The biggest risk perhaps comes from choosing the right company to invest in. While there are success stories like FedEx and Intel that grew exponentially due to private equity fund, there are failures. The bad thing about it is that it is rare to find a private equity firm that guarantees its interest rates to investors, so you are never protected. But still, the risk is worth taking rather than waiting out your interest in a savings bank account.