Private Equity Funds

Abstract

The world of private equity and private equity funds is potentially very lucrative (offering the potential for extremely high returns) but extremely risky (not for the faint of heart). Private equity generally buys distressed private (non-publicly traded) businesses, positions them in a fund available to wealthy investors, and attempts to turn those businesses around financially before “taking the business public”—that is, engaging in an initial public offering (IPO) of the shares. A segment of private equity firms also invests in start-up businesses and are known as venture capitalists. Because individual investors in private equity funds are primarily accredited investors (investors with a net worth of at least $1.0 million, excluding home equity), it is appropriate that private equity and private equity funds constitute the third and final chapter in this section on professionally managed assets for high-net-worth investors. Because of the paucity of individual investors with the requisite capital to fund private equity and private equity funds, the industry primarily depends on institutional investors, such as pension funds, to provide capital.