Competitive Advantages of PE Investment

Raising capital for companies is one herculean task but with appropriate planning some have succeeded in securing capital. Private equity is the kind of investment which is made in companies at their early stages. The main objective of private equity investors is to sell the stakes in the company after the IPO.

The investors who put their money are usually the pension funds, family offices, corporations, charitable and endowments foundations. The investor invest their money for a  long period of time the dominant reason to do that is less exposure to risk.There are many benefits of private equity investments:

• Lower Volatility: The downside of investment is the risk quotient involved. And all types of investments carry risks to some degree. However, in case of private equity that risk is a lot lower as compared to other options for investment. As already mentioned the investors cannot withdraw the money before the company goes for an IPO (Initial Public Offering). It can take 4-8 years in most cases for investors to get returns. The reason why private equity is safe is that it is not subjected to the public market speculation. This isolation allows companies to function with a great degree of flexibility.

• Improves Diversification: The diversification of private equity can primarily be done in two ways. First strategy is leveraged buyout where the objective is to buy out well established companies and transform into private entities. And second is venture capital where the stake are bought in private companies operating in their early stage and sell later at the time of IPO.

• The return on capital for a Private equity fund is usually in 2 figures. But the number can go in 3 figures as well if the investment is made in the right startups in rapidly growing sectors. Private equity investors are known to make profits up to 200% of their investment.