1. 25 Investments: Introduction
  2. 25 Investments: American Depository Receipt (ADR)
  3. 25 Investments: Annuity
  4. 25 Investments: Art and Collectibles
  5. 25 Investments: Bonds
  6. 25 Investments: Cash
  7. 25 Investments: Closed-End Investment Fund
  8. 25 Investments: Common Stock
  9. 25 Investments: Convertible Bonds
  10. 25 Investments: Corporate Bond
  11. 25 Investments: Futures Contract
  12. 25 Investments: Life Insurance
  13. 25 Investments: The Money Market
  14. 25 Investments: Mortgage-Backed Securities
  15. 25 Investments: Municipal Bonds
  16. 25 Investments: Mutual Funds
  17. 25 Investments: Options (Stocks)
  18. 25 Investments: Exchange-Traded Funds
  19. 25 Investments: Preferred Stock
  20. 25 Investments: Private Equity
  21. 25 Investments: Real Estate & Property
  22. 25 Investments: Real Estate Investment Trusts (REITs)
  23. 25 Investments: U.S. Treasury Securities
  24. 25 Investments: Unit Investment Trusts (UITs)
  25. 25 Investments: Venture Capital
  26. 25 Investments: Zero-Coupon Securities
  27. 25 Investments: Conclusion

Private equity is just that – equity, or an ownership stake in a private company.  Public equity is much more liquid and stock market values are readily available, though they are meant to be a guide and not the definitive value for what a company’s intrinsic value really might be.

 

Private company investing takes patience, and it is questionable if returns are at the end of the day better and more worthwhile than investing in public companies.  There are public vehicles for investing in private equity, either through mutual funds or ironically, P.E. firms that happen to be publicly traded.  These include firms such as the Carlyle Group, Blackrock, or KKR & Co.

 

Objectives and Risks

 

P.E. is less liquid and more risky.  Investing horizons for a purely private company are at minimum three to five years, and it could take as much as decade for some investments to reach fruition.  Therefore, investors should require a higher risk premium, or expected return compared to public companies.  Theoretically, private companies should be able to take a longer term view of their markets.  In contrast, public companies are criticized for obsessing over quarterly results and short-term profits to appease myopic-minded investors.  For more, read our Primer On Private Equity

 

How To Buy or Sell It

Buying private companies can be done through business brokers, who can also help you sell a company.  In a number of respects buying a P.E. firm is similar to investing in physical real estate.  Mutual funds that offer exposure to P.E. can be traded with brokers.  The same goes with publicly-traded P.E. firms.

 

Strengths

 

Can take a longer investment horizon

Similar analysis as public companies

Funds and public P.E. firms more liquid

 

Weaknesses

 

Illiquidity of private companies

Very long time horizon

Returns on public companies just as good

 

Key Considerations

 

Liquidity:  Low (except for funds)

Historical Returns:  Medium

Inflation Protection:  Medium


25 Investments: Real Estate & Property
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