A high yield private equity fund consists of investors that invest directly in private companies. These investors can also engage in buyouts of public enterprises which results in the delisting of public equity. When the investors contribute to the private companies, the funds are used to support new technology, improve working capital, solidify the balance sheet and make acquisitions. Private equity is mostly helpful to companies in financial distress. The investors have to be patient since the investment takes the time to earn a return. The capital can also be used to enable liquidity such as an IPO or sale to a public company. Just like the pension and mutual funds, the concept of private equity is pooling resources, adviser pool gets the funds and uses them make an investment on behalf of the investors
Investment by private equity funds
The primary factor that differentiates private equity from the pension fund and mutual funds is time. With private equity, the investment is long term; it could take up to 10 years. Most private equity funds have the goal of obtaining a majority control over the companies they have invested. They engage actively in the decision making and the day to day activities of the enterprise. Other funds may take minority control in start-ups and growing companies.
The people who invest in private equity funds are mostly wealthy individuals, pension funds, insurance companies, university endowments and institutional investors. You may not be interested in private equity buy if you are a member of a pension must, chances are, there is a portion of your funds in private equity.
Fees and expenses of private equity funds
When investing in a private firm, it is crucial to note the fees and the expenses. At the time of investment, the investor will receive documents with details of the investment partnership. The document will also disclose all material information concerning fees and expenses to be incurred by both the investor and the fund. The terms governing the investment will also be disclosed in the documents.
Yields of private equity funds
Over the last decade, private equity has become more popular. Investors have preferred to invest here rather than the traditional assets. Private equity is preferred because before making the investment, the fund gets to learn about the company and it has private legal information. Knowledge of the business you want to invest in enables you to make an informed decision. Private equity has been earning higher returns than traditional assets. The high returns have attracted many investors, thus the growth of private equity.
The aim of any private equity manager and investor, it to earn high returns. Though the returns may take long, eventually the fund will get real earnings. High yield equity funds have common characteristics which are:
- Avoiding deals that are losers. High yield equity funds do not invest in deals that are likely to lose. The fund manager will always evaluate the company in question and determine the risks associated with the company. If the managers find the company hazardous and not likely to earn the fund return, they do not accept that deal.
- Finding deals that win big. A wise fund manager will go for an investment that will not only get the fund a return but a high return.
- Backing winning deals that are bigger deals. Good fund managers should have the ability to convert small transactions into winner deals. It is easier to grow a small company with high potential that to grow an already big company.