Private Equity Investing, a Growing Market
In recent years, with the innovation of technology and the development of a global economy, there has been a tremendous amount of wealth which has been generated. Today, we now have far more millionaires than ever, and with the ease of information sharing, it seems as if that number will only grow.
With all of the wealth that now exists, you may ask, “Where do all of these high net worth individuals invest their money”? Well, though most choose fixed investments (ex. Bonds, CD’s, Treasuries, etc.) for a portion of their portfolio, there are a rising number of investors seeking diversification within alternative investments. Though other investments such as managed forex and futures trading have made a huge impact all over the world, the private equity market is the most important for one reason: it is the lifeblood of the global economy.
Before we get any further, let’s take a look back 20 years ago, and examine the beginning of a huge shift in the private equity markets. It the early 1990’s, it was a time for great opportunity and unparalleled growth within many parts of the world. At that time, technology companies were popping up everywhere, the internet had just started to become popular, and many other new businesses had great ideas, but not enough funding. As you will learn, this became a ripe environment for private equity firms, which lead to immense growth in the industry.
By the end of the 1990’s, investors had caught on to the trend in the private equity industry, and responded by allocating a large amount of assets. Once a market with a few billion dollars of participation, private equity had now become a multi-trillion dollar investment arena. Though this was great for investors, this growth had far more implications worldwide. Now, with the help of private equity firms, much of the wealth which was generated over these years could go back into funding new ideas in the economy. With over 2.5 Trillion dollars invested in private equity funds, things were good for investors, firms, and the world, until the financial meltdown of 2008.
Once the financial crisis had hit, and private equity had reached its peak, the economy started to tumble fast. With a looming credit crisis, and limited funding access from private equity firms, the entire world economy started to feel the pain. No matter what the company or idea was, without funding there became little chance for new growth. Once the private equity funded companies stopped growing, investor sentiment dramatically changed. Just a few months ago, investors had been lining up to invest with private equity firms, and now, they were nowhere to be found. Since very few people were willing to invest in late stage venture capital or pre-ipo companies, this lead to a cycle of economic stagnation that persisted until consumer sentiment improved.
In today’s investment world, the financial markets have turned around, spurring a change in the private equity industry. Once a “sellers market” in 2008 and early 2009, we have now entered a “buyer’s market” that has lasted for over six months, and may persist for quite some time. As a result, many companies are now considered undervalued and even more are underfunded. Though we are not out of the woods yet and growth is slow, this shift in investor sentiment has lead to a rebirth of interest in private equity firms.
When you observe the massive growth in the 1990’s and recent years, it is safe to say that private equity will continue to be one of the biggest markets in the world. With a profit potential far beyond traditional investments, and seemingly endless companies in need to funding, it has become a CRITICAL solution for investors, illiquid companies, and the world economy.
InsideTrade LLC Staff
Phone: (949) 444-2111