Understanding Private Equity Funds
If you are fairly new to the world of investing, then you need to have a thorough understanding of private equity. Basically private equity funds are nothing but collective investment vehicles that invest the money in different types of securities as per the strategies stipulated by private equity. |
Usually private equity funds are managed by private equity firms. Usually one firm will handle different equity funds that are in the same category. Also, the firms float a new fund once in three or five years when the previous fund has reached its investment potential.
Invariably private equity funds are limited partnerships. This means that they have to follow the rules and regulations prescribed by the limited partnership agreement. A private equity fund will have a general partner, who is responsible for coming up with cash. This cash is raised from institutional investors, like universities, pension plans, endowments, insurance companies, high net worth individuals, and foundation. The investors invest in the fund as limited partners. Usually the partnership if a limited number of years, which is invariably ten years, and the partnership can be extended. The investors have to pay a certain amount of money as management fees on a yearly basis. These fees constitute 1 percent to 2 percent of the amount invested. From the profits that the private equity fund makes, 20 percent goes to the equity fund management company, while the balance 80 percent goes to the investors.
Private equity funds are risky, but the potential returns can be substantial to make the investment worthwhile. However, these funds require a lot of money and that is why they are open to just those investors who can invest a minimum of $1,000,000.
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