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Home » PRIVATE EQUITY

What do Private Equity Firms Invest In?

private-invest-equity-firms-investorIn a world of new ideas, the private equity business has flourished, funding a diverse array of companies all over the globe. Whether it’s funding a medical invention or industrial supply company, the private equity market is important and has grown for one reason: each firm has a unique investment niche.

As with every other investment market, there are people in the same business, but with completely different approaches. In the private equity market, it is no different. In fact, each private equity fund has its own strategy, and their unique formula is what makes them different from other funds.

In this article we will explain private equity investment strategies by providing examples, allowing you to understand how each private equity fund creates their niche.  In addition, we will provide a chart which will help explain private equity diversification, while also listing common investment strategies. What are you waiting for?  Scroll down and take a look!

Examples of Private Equity Strategies

Private Equity Firm 1: This private equity firm ONLY invests in pharmaceutical, healthcare, and information technology companies.  Also, they invest ONLY with companies that are considered to be “late stage” venture capital opportunities.  By creating a strict set of rules, the firm reduces risk and focuses on perfecting their niche.

Private Equity Firm 2: In this equity firm, the manager will only invest with companies in the Biotechnology Industry.  Though he is strict with that requirement, he will invest with companies at ALL different stages of their development.  By investing with companies at different stages of their development, they can diversify amongst the varying strategies.  In this case, the private equity fund manager is an EXPERT in Biotechnology, so he feels comfortable analyzing any opportunity in that market.

Private Equity Firm 3:  This private equity firm invests with other private equity firms, not directly with companies.  In most cases, this is referred to a private equity “fund of funds”, which is becoming the most popular structure in the private equity market.  By investing with other private equity firms, which then diversify within other firms, this firm achieves a more balanced yield for their investors.  The key to success with this strategy is simple, making educated decisions which focus on growth BUT diversification.

To help you understand the strategies of private equity firms even better, we have provided a chart below.  In this chart, you will see a diversified investment strategy from a successful private equity firm.   In most cases, top private equity firms will have a strategy that is very similar, since proper diversification is the goal of any fund manager.

private-equity-investments-investor

Despite the information in the chart above, remember, this is just an EXAMPLE of diversification and every private equity firm has their own “secret sauce”. As you would expect, each private equity manager has an EXPERTISE, and certain markets they know best. In short, their duty is to follow information affecting their investment, perfect their niche, and keep the investors happy.  Unfortunately, many fund managers fail to do one of these three things, and for that reason, they never make it to the top.

In summary, private equity is a market with great promise, but finding a manager whose “secret sauce” tastes good year after year is tough to do. Remember, patience and education will be your best tools in finding a private equity investment. Though there are good private equity firms around, you MUST be aggressive AND diligent if you want to find one

InsideTrade LLC Staff

Phone: (949) 444-2111

4 Comments »

  • Brian said:

    Nice writing. I worked with a company that owned oil interests and they were seeking private equity money. I made a lot of money but it was tough.

  • How do Private Equity Fund Investments Work? | InsideTrade LLC said:

    [...] Key Components of Private Equity Investments [...]

  • Kyle said:

    I am trying to find private equity capital for an early stage desalination technology project. We have technology that's far superior to reverse osmosis and the Navy has a lot of interest. They would like to convert thier RO tech. to our tech..

    I also work for a private investment firm who is heavily involved in the distressed asset space. We have successfully purchased over 35 pools and deployed over 130MM in the last 16 months. We need additional capital going forward.. We currently trade with some of the top 20 banking institutions in the country and our purchase goals are 100MM monthly so we need additional capital sources..

    Can anyone help advise me?

    Kyle Johnson
    APG, LLC
    Kjohnson@assetprocurementgroup.com

  • Paul said:

    Hi Brian,
    I would like to speak to you about this and my company's involvement in oil, pprior@myprioritycorp.com
    Paul

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