Private Equity 4.0: Reinventing Value Creation

7 Investing in a fund

Executive summary

Investing in private equity is the easy part; getting results is the difficult one! This, in facetious terms, summarizes the dilemma facing investors in this asset class. While investing can indeed generate very interesting returns, it does so only to those that have invested enough time and effort to understand the inner workings of the industry. Like many alternative asset classes, private equity does not avail itself easily to common mortals. In this chapter, we try to extract simple rules of engagement that should improve one’s abilities to navigate rather treacherous waters.

First of all, private equity is not an exclusive club per se. The only prerequisite to join is a sufficient fortune to create a level of diversification among fund investments where entry tickets can be as high as $10 million and a preferred investor status means the ability to commit hundreds of millions to a fund. Once an investor passes the investable wealth criteria, the question becomes how to invest that money with the highest chance of generating high returns. A vast array of investment vehicles exists, both for direct and indirect private equity investing, whether the investor wants to manage the GP selection and investment process himself, or whether he prefers to outsource to another organization. In all cases, private equity fund managers are not ...