Gain insight into what is Private Equity (PE). Are you a qualified or accredited investor? Should you be investing in PE?
What is Private Equity
Private Equity (PE) is a type of alternate investment consisting of investing in equities in a company that is not public listed (not traded on stock exchange). The motivation or purpose investing in PE is to achieve positive returns on investment (ROI). Funds are raised from shareholders to be invested. PE investment duration typically is from two to seven years.
Private Equity used to be only for large well-funded private equity firms and qualified investors (see below). Today, PE opportunities are increasingly marketed for individual investors. However, there has also led to an alarming increase in fraudulent/scam-like PE, and individuals who are unsuited for PE yet investing after being motivated by greed or being convinced by others.
Private Equity Pros & Cons
- Higher returns
- May come with capital protection
- Higher risks
- Not capital guaranteed
- Not necessarily regulated
- Higher minimum investment amount versus most other asset classes
- Exposed to scams or dubious companies
Capital protected means that you are promised to be returned your original investment at the end of the minimum period. However, this protection is not fail proof and may occur situations which leads to a loss of capital (hence not capital guaranteed).
Other Private Equity Risks
- Fraud and Misconduct Risk including corruption, bribery, unethical practices, and lack of transparency.
- Technology Risk of being outdated, made obsolete, and facing cyber attacks.
- 3rd Party Risk by external parties engaged by the company that fail to deliver, or worse.
- Compliance Risk of failing to meet laws, rules and regulations.