Private Equity Funds

Private Equity Fund is an investment that consists of capital that is not listed on public exchange. It comprises of funds and investors that invest directly in private companies or that engage in acquisition of public ones. They have LPs who own maximum shares in a fund with limited liability and GPs with full liability. They are mainly from institutional investors and accredited investors.

They make money by charging the management and charging performance fees from investors. They can take various forms from complex leveraged buyouts to venture capitals.

In other words, a private equity fund is a pooled investment vehicle where the adviser pools together the money invested in the fund by all the investors and uses that money to make investments on behalf of the fund. Unlike mutual funds or hedge funds, however, private equity firms often focus on long-term investment opportunities in assets that take time to sell with an investment time horizon typically of 10 or more years.

A typical investment strategy undertaken by private equity funds is to take a controlling interest in an operating company or business—the portfolio company—and engage actively in the management and direction of the company or business in order to increase its value. Other private equity funds may specialize in making minority investments in fast-growing companies or startups.

Even if you are not invested in private equity funds directly, you may be indirectly invested in a private equity fund if you participate in a pension plan or own an insurance policy, for example. Pension plans and insurance companies may invest some portion of their large portfolios in private equity funds.

It is important for an investor to be aware and alert about the conflicts that exist, or that may arise, in the course of an investment in a private equity fund.

A distinctive feature of private equity funds is that these are not traded on the stock exchange. Also, not everybody can invest in these funds. That’s also why the money is generally raised from institutional investors comprising investment banks and HNIs. A professionally-managed team raises funds and uses it to finance future acquisitions and start-ups, raise capital or invest in other private companies.

Private equity funds are not subject to regular public disclosure requirements.