Bauer Wealth Blog

How to Invest in Private Equity

Nov 25, 2019 3:55:00 PM / by Stephen Heitzmann

Learn more about Private Equity:

-Download our Private Equity eBook-

 

As the landscape of investing evolves, it’s important to recognize what opportunities are available for you and how to utilize these opportunities. Alternative investing strategies help diversify your portfolio with investments not generally correlated with the traditional stock and bond markets. Private Equity is one of the most notable of all alternative investing strategies.

Discover how to invest in Private Equity and find deals that align with your investment goals.

 

Things to consider before Private Equity investment

Before getting started with private equity investment, take note of the following::

 

Long Investment Horizon

Private equity investments generally last anywhere from two to ten years which is different compared to the public equities market where securities can be bought or sold daily. This means an investment into private equity can be untouchable for an extensive period of time. An investor should not arrange funds if there is a chance they could be needed in the near future, and must have a steady cash flow. 

Asset Level 

Private equity investments require high net worth investors who are comfortable with a minimum investment, usually $100,000-$10 million. Private equity firms will not work with anyone who is not an SEC qualified purchaser.

Fees 

A private equity investor must be aware of the management and profit shares fees and only work with high-quality managers.

Multiple Areas for Value 

Private equity investment must have multiple avenues where they can create value in a business and be up-to-date with the industry's latest trends.

 

Things to consider when exiting Private Equity investments 

There are several factors that must be considered when exiting a private equity fund. Most firms will take a partial exit or a total exit. In a partial exit, another investor purchases part of the business. A total exit involves a full trade sale to another buyer. When deciding on an exit strategy, the following factors should be considered:

  • What exit routes are available
  • Having an appropriate business strategy and capital structure
  • The stability of the current management team
  • The potential buyers
  • The Internal Rate of Return
  • The investment horizon

 

How to Find a Private Equity Firm

With private equity, there are no sales pitches or trying to persuade investors to lend money. Private equity firms are always looking for new opportunities and actively reaching out to other firms. Businesses may also reach out to private equity firms that meet their criteria. There are also public listings of private equity firms to help guide a business to a private equity partner.

 

Personal connections are important when choosing a partner because whoever invests will play a large role in running the business as well as directing its future. In addition to money, it’s best to choose a trustworthy partner that you see yourself getting along with. Do not always necessarily choose the investor offering the highest valuation. 

Ask Bauer Wealth how we can help you find Private Equity opportunities if you are interested.

 

Tips for Working with a Private Equity Investor

 

In order to maintain a practical relationship with a private equity investor, the following tips are suggested:

 

  • Work in an honest partnership with an investor and listen to their issues and views on the company. Sharing the same interests as an investor will create long-lasting relationships.
  • Be transparent about all the good and bad aspects of the company. Always disclose all news with the investor and do not hide things from them.
  • Take all of the private equity firm’s advice. They know the industry very well and can help identify issues ahead of time.
  • Hire the perfect staff together with a private equity investor. The quality of the company’s management team cannot be compromised.  
  • Be open to changes an investor suggests, including bringing in outside expertise when necessary.
  • Demonstrate a strong focus on cash management to an investor.
  • Keep an open mind to suggestions that will be beneficial long-term. Do not just focus on short-term earnings growth.
  • Keep in mind that deciding to use an investor means the business will eventually be up for sale.
  • Prepare an exit strategy early in order to create maximum value for its shareholders.

 

How & Why to add Private Equity into Retirement Portfolios

 

Financial advisors often times work with their clients on investments for one ultimate goal: to make enough money to live comfortably in retirement and not run out. Smart diversification includes having an allocation in alternative investments that are uncorrelated to the stock and fixed income markets. For this reason, private equity investments, like other types of alternative investments, can be an effective retirement plan option.

Private equity investments are recommended in certain situations because investors can be better positioned for a downturn in the market. Private equity investments generally carry a higher return potential and can also serve to reduce the overall volatility of a portfolio. Many types of alternative investments can be beneficial during time periods when traditional asset classes are stagnating.

Ask a Bauer Wealth adviser how we can integrate private equity into your retirement portfolio.



How To Invest in Private Equity with Bauer Wealth Management

In most cases, it’s extremely difficult to discover and capture private equity investments unless you know the founders personally. Private Equity investment opportunities are often intentionally reserved to provide exclusivity to a few key stakeholders. 

 

In the past, it would be virtually impossible for you to invest in private equity - but we are changing the game. We were inspired to replicate the success of a private equity investment model, but with the personability of a local financial advisor. After decades of networking and building the right relationships... we are now able to provide our clients with genuine private equity opportunities you can trust. 

 

We build strong relationships with agents, companies, teams, and accelerators that simply need capital to grow their business. We vet opportunities for risk, reward, culture, market potential, and dozens of other provable metrics. Then, we extend the most relevant and useful Private Equity offers your way. 

 

We believe in investing with an impact. Private equity is an effective way to leverage mindful investing into meaningful companies and opportunities.

 

Book a meeting today to see what Private Equity opportunities are available for you.

 

Or if you'd like to learn more about Private Equity...

-Download our Private Equity eBook-

 

Topics: Private Equity

Stephen Heitzmann

Written by Stephen Heitzmann

Stephen Heitzmann is the CEO of Bauer Wealth Management, a Wealth Management Firm, based in Colorado Springs, CO. www.bauerwealthmanagement.com Bauer Wealth Management is a Registered Investment Advisor (CRD#: 152977/SEC#: 801-71090) with the Securities and Exchange Commission. This article does not represent an investment recommendation or endorsement of any kind. Please consult with your advisor regarding your specific situation. Investing in securities does involve risk of loss that clients should be prepared to bear. The risks can range from failing to keep pace with inflation to losing some or all of the money you invest.