Investing in Private Equity? 3 Questions to Ask Yourself

By Martin Stein via

Front-row seats to Game 7. An 8 o’clock reservation for a five-star restaurant’s opening night. Backstage passes to The Rolling Stones. Private equity.

A lot of the most exciting things in life aren’t accessible to everyone. But sometimes, like private equity, it’s the best option if you can swing it. PE also has its downsides, so you should be fully aware of the pros and the cons as you decide whether to jump into the fray.

Investing in private equity can be rewarding and lucrative for many investors, but it’s important to get clear on how it works and what options are available.

The ABCs of PE

PE is generally a subsection of alternative investments, an eclectic group that includes real estate and hedge funds — as well as comic books, wine, collectible coins, and whole life insurance policies.

Private equity is then divided into two major categories: leveraged buyouts, or LBOs, and venture capital. LBOs refer to mature, later-stage transactions, whereas venture capital deals with early-stage transactions. LBOs are a natural for PE, because it is funded almost entirely by accredited investors who are able to combine financial resources to purchase companies.

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