People tend to say that investment in a time of recession is highly risky and can lead you to a pretty unfortunate path. Yet, investing in private equity can play well and create a valuable asset class during a period of declined economic activity. By carefully estimating all potential threads and possibilities, with the right processes and technologies in place, your company may perform greatly and get impressive returns. So, let’s take a look at the equity fund definition, types of private equity funds, and their pros and cons.
Definition of Private Equity Fund
The Private equity funds definition is a little complex. So here is an explanation of what is an equity fund. It is an investment managed by a white sails private equity company. It is done when the firm pools money from its investors and redirects it to various opportunities. Unlike private equity firms mutual or hedge funds tend to focus on long-term investment opportunities. Also, they often keep these assets for years waiting for the perfect time to sell them. The investor from a private equity fund, the person is supposed to contribute to the pooled investment and let the private equity company conduct the investment decisions on their behalf.
Types of Private Equity Funds
There are five main types of private equity funds that are generally associated with different investment strategies. Here we shortly describe each of them:
Venture Capital Funds: Private equity funds are often associated with startup culture as they usually take place in the first stages of company formation.
Growth Equity Funds: The type of private equity funds that are invested in existing companies, allows investors to study the performance of the business and estimate how perspective it will be in the future.
Buyout Fund: Type of funds invested into the big companies that have already proven their effectiveness and provide the opportunity to test the product.
Distressed Debt Funds: These types of private equity fund structures are used when the company is about to get bankrupt and needs financial assistance to survive.
Mezzanine Funds: This type of private investment fund is provided to companies that are in the process of expanding their production or making strategic acquisitions.
Thus, if you want to invest in private equity examine all of the options and make your decision.
Partners and Responsibilities
When it comes to private equity fund structure partnerships are established between two types of partners: limited partners (LPs) and general partners (GPs).
Limited partners are investors who provide funding for the investment and have passive role. Limited partners are responsible for providing the capital for private equity investments. They have a limited amount of liability and zero control over the investing decisions. LPs mostly rely on the expertise of the GPs to manage the investment and generate returns.
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General partners are actively involved in managing the investment. GPs are those who take full responsibility for investment decision-making. They conduct analyses and come up with a list of possible companies that have the potential to generate high returns and may boost the attractiveness of their investment portfolio. As GP is in charge of financial sustainability, they usually are chosen from people with solid private equity real estate funds investment experience.
Pros and Сons of Investing in Private Equity Funds
So, if you are thinking of a private investment fund, then we can point out the following pros and cons:
- Fast growth
- Option of financial advice
- Employee ownership
- Companies are interested in success
- Funds can be raised unlimitedly
- Complex accounting
- Investor veto right
- Equity shares prices based on negotiations
- Restrictive agreements for managements
- Complex accounting
Do you need assistance in private equity investment? The White Sails are here for you! With a solid investment portfolio and plenty of satisfied clients, we will find the best way to assist you with your investments and get high profits. Looking for a reliable partner? Contact White Sails now.