How Private Equity works
Companies can be owned by families, business women and men, they can be listed on a public stock market or they are owned by a Private Equity fund. Private Equity is an investment into a company, which is not publicly traded, and hence has one focused entrepreneurial owner. Private Equity firms pool money from big institutional investors like pension funds or wealthy individuals into funds. With this pooled money Private Equity funds acquire multiple companies with the aim to be a focused and entrepreneurial owner of the company for a typical period of 5 to 8 years.
Once a company is acquired, the Private Equity fund ensures that an experienced board and management team is assigned. With this experienced team they work closely together on an entrepreneurial mid- to long-term value creation plan for the company, with the aim to finally sell it to a new owner who appreciates that lasting value has been created. Through iAccess Partners you can invest in Private Equity funds starting at a minimum of 25’000 Swiss Francs.
Advantages of Private Equity investments
Private Equity fund investments have at least 5 clear advantages over public equity
A Private Equity fund screens numerous companies, before it buys one. Through a rigorous screening process the Private Equity fund focuses on selecting the most promising companies.
A Private Equity fund usually invests in many companies from different industries and geographic regions, which ensures that an investment in a Private Equity fund is well-diversified.
There are many investors in a Private Equity fund. However, when it comes to the value-creating decisions with regards to the companies a Private Equity fund owns, the fund itself acts as one owner on behalf of its investors. This ensures an entrepreneurial ownership of the companies of a Private Equity fund.
The Private Equity fund ensures a strong alignment between itself, the board, and the management team of the companies it owns with regards to ensuring entrepreneurship.
The Private Equity fund is focused on the long-term value creation of its companies.
Private Equity fund investments outperform public equity investments and are more resilient in down-turns.
Private Equity funds have outperformed comparable public equity by ~5 percent per year. Over the last 20 years the return with Private Equity was 3-times higher than with public equity.
Moreover, Private Equity funds are more resilient during economic downturns than public equity.